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Closer to youAnnual Report 2017

2017 was a year of strenuous consolidation efforts as we were still in the process of merging Comercial Mexicana stores to Soriana. We implemented best practices that are enabling us to upgrade our new business processes and operating systems, and thus improve Company efficiency and competitivity. Moreover, we optimized our logistics network and distribution centers, adhered to the stores units’ remodeling and upgrading program, opened a new store concept and started new services that, together with the stores, will allow us to offer a better shopping experience to customers.

CONTENTSSoriana Today

Financial Highlights

Company Profile, Mision, Vision, Values

Presencia

Letter from CEO

Integration

New Business

Commercial Strategy

Human Resources

Logistics and Operations

Corporate Responsibility

Board of Directors

Audited Financial Results

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2013 2014 2015 2016 2017

Total Revenues 105,028 101,829 109,380 149,522 153,637% of Increase Total Stores 0.4% (3.0%) 7.4% 36.7% 2.8%% of Increase Same Stores (2.2) (4.8) 5.6 7.2 3.2

Gross Profit 22,229 22,491 23,155 33,161 34,356% Gross Margin 21.2% 22.1% 21.2% 22.2% 22.4%% of Increase 3.1 1.2 3.0 43.2 3.6

SG&A Expenses 14,695 15,431 15,693 21,321 21,955% SG&A Expenses 14.0% 15.2% 14.3% 14.3% 14.3%% of Increase 4.0 5.0 1.7 35.9 3.0

EBITDA(1) 7,534 7,060 7,461 11,840 12,401% EBITDA(1) 7.2% 6.9% 6.8% 7.9% 8.1%% of Increase 1.5 (6.3) 5.7 58.7 4.7

Operating Income 5,558 4,977 5,306 8,376 9,150% Operating Income 5.3% 4.9% 4.9% 5.6% 6.0%% of Increase 2.7 (10.5) 6.6 57.9 9.2

Net Earnings 3,117 3,704 3,726 4,208 4,606% Net Earnings 3.0% 3.6% 3.4% 2.8% 3.0%% of Increase (12.4) 18.8 0.6 12.9 9.4

Cash Net Profit 6,323 5,837 6,705 7,215 6,763% Cash Net Profit 6.0% 5.7% 6.1% 4.8% 4.4%% of Increase 3.2 (7.7) 14.9 7.6 (6.3)

Total Assets 78,952 80,720 101,845 129,077 129,340% of Increase 6.2% 2.2% 26.2% 26.7% 0.2%

Total Liabilities 35,553 34,320 51,716 74,779 70,458% of Increase 4.2% (3.5%) 50.7% 44.6% (5.8)

Shareholders’ Equity 43,400 46,400 50,129 54,298 58,882% of Increase 7.8 6.9 8.0 8.3% 8.4%

Customers (millions) 578.9 573.5 578.6 734.9 714.4% of Increase (1.2%) (0.9%) 0.9% 27.0% (2.8%)

Employees (thousands) 80.9 85.3 81.8 103.5 104.5% of Increase (5.6%) 5.4% (4.1%) 26.5% 1.0%

Number of Stores 659 674 682 827 824% of Increase 8.7% 2.3% 1.2% 21.3% (0.4%)

Sq. mts. of Sales Floor (thousands) 3,220.6 3,285.6 3,309.4 4,324.3 4,299.6% of Increase 2.7% 2.0% 0.7% 30.7% (0.6%)

(Millions of Mexican pesos)

4,29

9.6

3,30

9.4

3,28

5.6

3,22

0.6

SALES FLOOR AREA(thousand of m2)

$4,6

06

3,72

6

3,70

4

3,11

7

NETINCOME

$12,

401

EBITDA

$153

,637

109,

380

101,

829

105,

028

TOTALREVENUE

149,

522

11,8

40

7,46

1

7,06

0

7,53

4

4,20

8

4,32

4.3

201

3

201

4

201

5

201

6

201

7

201

3

201

4

201

5

201

6

201

7

201

3

201

4

201

5

201

6

201

7

201

3

201

4

201

5

201

6

201

7

FINANCIAL HIGHLIGTS

The figures presented in this fiscal years are under international financial reporting standards (IFRS)(1) EBITDA is defined as operating income before depreciation and amortization.

MORE THAN $153 BILLION PESOS IN TOTAL REVENUES IN 2017

824 STORES & 14 DISTRIBUTION CENTERS

PRESENCE IN ALL 32 STATES OF THE MEXICAN REPUBLIC

MULTI-STORE FORMAT + MULTI-REGION BUSINESS STRATEGY

IMPORTANT LOGISTIC PLATFORM WITH NATIONAL COVERAGE REAL ESTATE NETWORK CONDUCTED BY MORE THAN 9,300 COMMERCIAL PREMISES

MORE THAN 104 THOUSAND COLLABORATORS

$125 MILLON PESOS IN SOCIAL INVESTMENT IN 2017

MISSIONSatisfy the needs of products and services of the communities where we are present, promoting in each of us the philosophy and values necessary for guaranteeing a permanent and valuable relationship with our clients, collaborators, suppliers, shareholders, community and environment, obtaining in this manner an adequate profitability and assuring our permanence and growth.

VISION Give service every time to a bigger number of communities as a leader, by offering the best shopping experience to our customers and the best workplace to our collaborators, derived from a constant innovation.

VALUES

PRESENCEWe are Organizacion Soriana, a Mexican retailer Company founded in Torreon, Coahuila, Mexico in 1968. The company capital stock shares have been listed in the Mexican Stock Exchange since 1987 under the name SORIANA B.

Under a multi-format strategy, we operate as of year-end closing, 824 food-retail stores and wholesale clubs, plus those belonging to the convenience store chain known as “Super City”. The total sales floor area exceeds 4.2 million square meters distributed throughout different store formats. The sales floor coverage of the central and northern part of the country reflects the highest concentration, representing 42% respectively of the total with 675 stores. The Logistics network is composed of 14 distribution centers that are strategically located in 8 states of the country.

In stores, we annually process more than 714 million transactions, with a sales force of more than 104,000 collaborators. Our headquarter offices are located in Monterrey, Nuevo Leon and Mexico City.

We are present in 279 municipalities of the 32 states of the country.

WE ARE CORRECT AND POLITE

ONE TEAM WITH THE SAME GOAL: CUSTOMER SATISFACTION.

ACCOMPLISH RESULTS

WE ANTICIPATE AND INNOVATE

WE ARE COMMITTED TO SORIANA

PARTICIPATION IN NUMBER OF STORES

Soriana Híper 270Soriana Súper 129Soriana Mercado 142Soriana Express 103City Club 35Mega 69Comercial Mexicana 40Bodega Comercial 33Alprecio 3

South

Center

North 323

352

149

39%

43%

Stores

Stores

Stores

18%824TOTAL STORES

A N N UA L R E P O R T 2 0 17S O R I A N A 54

2017 was a year of challenges, consolidation and search for new opportunities that allowed us to learn how to improve. One of the most important events in the year was, without a doubt, the actions taken in the merging process of Comercial Mexicana stores to Soriana. We particularly worked on integrating logistics of both Companies in order to operate under a single entity. Even though this was not an easy task as this type of integration entails high risks, it was a necessary step towards achieving a more efficient logistics network with aligned operating processes and upgraded systems that integrate the best practices from Comercial Mexicana and Soriana. We also worked on integrating the best practices and operating processes in stores as part of our project called “La Mejor Tienda de Mexico” by which we will be able to offer a better shopping experience to our customers.

In addition to these efforts and with respect to the progress achieved in the year on the established businesses with our partner Falabella, in the month of May we started operations of the financial business by setting customer-service and card-issuance modules in over 40 stores in northern Mexico. As for Sodimac stores, we established the corporate offices with all commercial, administrative and operating structures. Besides, we are currently working on integrating the product catalog, closing deals with suppliers and tweaking the last details before we begin full operations with the first store to be opened by mid 2018.

As regards the investments in 2017, the total amount was of $2.105 billion pesos. That is, 62% were allocated to remodeling and upgrading 75 stores, 15% to opening 5 new units (1 Soriana Hiper, 1 Soriana Super, 1 Soriana Express and 2 MEGA Soriana stores), and the remaining 23% to systems and corporate investments.

DEARSHAREHOLDER

RICARDO MARTÍN BRINGASCEO

Continuing with one of the strategic plans of the Company, in the last 3 years we had made important investments in our Soriana.com online store. Were we have worked on improving shopping experience, increasing product catalog, and adding proper IT platforms that will enable the necessary support for future growth. Also, being the first supermarket chain to offer the mobile phone services through “Soriana Movile” which operates as a Mobile virtual Network Operator (MVNO) in association with Maxcom.

All these actions and the implementation of different commercial strategies launched in 2017 allowed us to keep positive same-store sales indicator and to close 2017 with a 3.2% growth. Total revenues reached $153.637 billion pesos which this is a 2.8% increase compared to 2016 and 824 stores in operation. We continued achieving increments at Gross and EBITDA margin levels by 20pb thanks to the synergies and commercial efficiencies reached for the second consecutive year since the acquisition of Comercial Mexicana. The Operating Earnings increased by 9.2% and Net Income by 9.4% reaching an annual result of $9.150 billion pesos and $4.606 billion pesos, respectively.

Additionally, we continue with our debt-reduction plan as part of our accelerated deleveraging strategy. By year-end 2017 we attained a year-year reduction of $3.016 billion pesos that resulted in a Net Debt/EBITDA ratio of 1.6 times.

And finally, but not less important, were the actions regarding to our Corporate Social Responsibility strategy. Throughout the year we concentrated efforts to increase the support given

9.4%to social causes no matter the big adversities that were faced during the year, being one of the most regrettably events, the earthquakes registered in the month of September that affected thousands of people in central and southern Mexico. The social investment reached $124.7 million pesos which benefitted more than 532 thousand people and supported 424 institutions throughout the country. 59% of the resources allocated by Soriana Fundacion were destined to actions that support children matters, 22% to the community and 19% to food aid. Regarding sustainability strategy efforts, it is worth to highlight the favorable progress made with respect to renewable energy: a total of 641 business units -that is 65% from all stores- benefitted from the supply of some type of renewable energy. This represents 40% from the total energy consumed by the Company in a year.

As you may see, all these ongoing actions and efforts being carried out, I am sure will usher in a more marked positive trend in our future performance, that in addition to our new businesses, products and services, will bring us closer to the Mexican families. I invite you to continue reading this annual report where you will be able to find details of the actions done throughout the year.

RICARDO MARTÍN BRINGASCEO

Net income growth vs. 2016


Evolution. A word that conveys the effort, work and dedication we have experienced throughout the years since we began our Transformation Project. Since 2011, this initiative has made it possible for us to transform our culture, renovate our image, adopt new technologies, incorporate best practices and consolidate the work we perform every day as a team to increase the Company’s efficiency and competitivity.

2017 was no exception and we kept going with this transformation. Derived from the purchase of Comercial Mexicana stores, we began the task of integrating its operation into Soriana’s operational, administrative and technological platforms, supported by 2 large two large foundations: the improvement and upgrade of our processes and operating systems and “La Mejor Tienda de Mexico” program.

The first one consisted in building a new platform that integrates the best operating and commercial practices of both companies focused on improving productivity, efficiency and service quality. We also strengthen our IT platform by providing mobility and multi-platform capabilities to the applications. Likewise and as one of the most critical phases in this project, was the full integration of Comerci’s procurement and distribution center systems

to Soriana’s. Also, the integration of the entire logistics network of the Company which led to the closure of 2 distribution centers that Comercial Mexicana was leasing as a result of the process of generating operational synergies between both Companies and operate under one single unified IT platform.

The second foundation, “La Mejor Tienda de Mexico”, program that was implemented with the purpose of improving and standardizing the operating processes of the stores through productivity tools that will enable: clean and well-organized stores, improve work environment, increased work-force productivity, have a better inventory optimization, a more efficient communication between central offices and the stores and finally, a better commercial strategy execution.

This new culture and way of work its support by the implementation of new technologies that were developed with the purpose of unifying and facilitating these tasks by offering appropriate information for a better decision-making. In regard of strengthening the relationship with our commercial partners, we improved the supplier portal by facilitating administrative tasks in order to become more efficient and together, offer more value to our customers.

OF BEST PRACTICES

INTEGRATION


GROWINGWITH NEW BUSINESS

We are a company that grows and evolves at the pace that our sector demands. We live in the constant search for opportunities that will allow us to improve and bring us closer to our customers. By virtue of this and after of hard work, we were able to materialize the first of the two businesses that we set together with our partner Falabella. Last May we officially launched the financial business with the first customer service modules in stores north of Mexico, ending the year with 45 card-issuance modules. In 2018, we expect to add 100 additional modules. With this business, we seek to open a new world of possibilities for both our customers and the Mexican market by facilitating and offering an integrated offer of financial services and credit products. With the new Falabella-Soriana card issued with Mastercard, will bring many benefits such as: exclusive discounts,

unique opportunities, double points when shopping in Soriana, financing and many other benefits promoted and supported by its transparency, convenience and simplicity values. Regarding the Sodimac business, the first store will be opened in 2018 in the state of Mexico, allowing with this the kickoff of the operations of this new format and a new sales channel for the Organization.

Once the use and rights of “Comercial Mexicana” trademark and “pelicano” logo expires in June of 2018, we will have migrated approximately 85% of the acquired stores to the recently created MEGA Soriana format. The other portion of the stores will migrate to any other Soriana store

format like Mercado and Express. Soon after we complete the aforementioned, we will begin the consolidation and final unification process to operate as a single Organization.

During the month of December, we inaugurated the first 2 stores under this new format that integrates the best operating and administrating practices and product catalog of both Companies. The stores are located in the city of Toluca in the State of Mexico and the municipality of Corregidora in the State of Queretaro.


EXTENDINGOUR SERVICESA new initiative implemented during the year was launching of “Soriana Movile”, the new mobile phone service line exclusive of Soriana in commercial alliance with Maxcom; a Mobile Virtual Network Operator (MVNO). It is through this service, that we seek to increase loyalty from our customers, to have a direct communication channel with them, promote the sale of the mobile phones available in the stores and to attract new consumers by offering a quality service that will meet their communication needs. Once this service is linked with the Soriana loyalty program, it will offer exclusive benefits such as: Redeem and recharge talk and mobile data with Soriana points, free mobile data by shopping products in the store and other benefits that will offer important savings in the cost of the cellular service.

Online shopping is becoming more common option; it is a sector gaining importance every day and, definitely, a trend responding to new shopping habits. It is because of this that we have made important investments in the last 3 years in our e-commerce platform, Soriana.com. This year was no exception. We worked hard on the development and consolidation of the general business strategy, especially working on increasing in an accelerated way the product catalog by making investments in technology and logistics in order to place products in the site not only distributed from our dedicated distribution center, but also directly from the sites of the suppliers. In addition, improvements were made to the IT platform in order to offer a better shopping experience. Also and as an important differentiating factor, the online store offers all the benefits of the “Soriana Loyalty Rewards” program such as the possibility of accumulate points from purchases made online and redeem them directly in stores and vice versa.


As part of the commercial efforts implemented during the year, we launched the strategic communication campaign “Somos Familia con Mexico”, campaign inspired on Mexican family values and traditions with the purpose of strengthening that link with our customers and being Soriana also a 100% Mexican Company.

June was without a doubt, a month of great importance for the Company. We launched the second edition of the most iconic commercial summer campaign in Mexico: Julio Regalado. Under the motto, “Julio Regalado es bien Mexicano”, sought to print the playful seal that characterizes Julio Regalado and making emphasis in national identity. For 65 days our customers were able to enjoy in more than 750 Soriana, Comercial Mexicana and Mega stores over 1,000 markdowns, 80 reward-of-the-day products and 7,000 free items with Soriana points. As well as promotions in the categories of groceries, home appliances, clothing, personal care, electronics, wines and spirits, applying direct markdowns, or 4x2, 3x2, 2x1, special price promotion, among others.

LINKS WITH OUR CUSTOMERS

STRENGTHENINGRegarding our commercial strategies implemented by store format and as part of our efforts to create differentiation and diversification among them, in 2017 we implemented in the stores formats Hiper and Super, the “Descubre” campaign, which was characterized by the language typically used in social media environments. The main character of this campaign was inspired on popular “bloggers”; a young, extroverted, dynamic shopping-expert mother who constantly searches for the best offers, sharing them in her social networks with all her followers using the distinctive communication style that has become popular.

As for Mercado and Express formats we developed a concept called “La Familia Mercado” campaign integrated by 5

animated characters symbolizing a “5-coin” family and who are “experts in savings”, advisors and allies of our customers. This campaign seeks to offer a clear identity to the format and reinforce the commercial strategy of “Barato y más Barato”.

With the purpose of fulfilling all needs of our customers that are looking for a value-quality-price alternative, in Soriana we have developed for over 25 years a catalog of own and private-brand products that today add over 1,750 items. This catalog is comprised by several brands: Soriana, Valley Foods, Quality Day, Pro Selection, Aiuto Vit, Trainer’s Choice, Bosque, Maria 1926 and recently after the acquisition of Comercial Mexicana, Precissimo, Altea, Be the Best and New Wave.

%

DON PESITO

CENTA VITO LANITA

DOÑA MONY


After the acquisition of the Comercial Mexicana back in 2016, we faced the important challenge of identify and generate operating and financial synergies in all areas, as well as carry out an orderly and satisfactory integration process that culminates in the unification of both Companies. By virtue of this and as cornerstone of this process were the activities performed in the logistics network of the company: The migration of 2 distribution centers from Comercial Mexicana to Soriana and the construction of a new logistics system that integrates the best practices of both companies; improvements were made in store reception, distribution, shipping and procurement. Though this type of integration is

very complex and highly risky its implementation throughout 2017 and 2018 is necessary in order to have a much more efficient logistics network.

Thanks to the synergies identified in this area and after unifying two different supply chains, we have reached savings of over $190 million pesos, actions which earned Soriana the recipient of the “Galardón Tameme” in October. This award is the most important logistics acknowledgement given to industrial and commercial companies that reached outstanding achievements from their application, dissemination and teaching of logistics in the country.

LOGISTICS NETWORK

EFFICIENT


WELLBEINGWE IMPROVE FOR YOUR

A single team living the same experience, this was the motto that kicked off the program that we internally call “Vive tu tienda”, program that let over 1,000 central offices collaborators to experience one day working in a store of their election and participate by giving support and carrying out activities in several areas such as: Fresh food, ready to eat food, bakery, pharmacy, customer service, among others. The purpose of this program was to create a communication link and raise awareness of the needs that stores and central offices have on a daily basis.

As part of our commitment to support the personal and academic development of our collaborators through several programs, Soriana Universidad was able to consolidate and graduate 530 collaborators in 2017 in several academic degrees. Also, there were over 3.7 million hours of training

given to reinforce topics related to technical knowledge to improve performance, develop skills and knowledge of the organizational culture. This represents an average of 4.1 monthly hours per employee. Additionally, there were 860 executives that completed courses in “Soriana Leadership Center” so as to have leaders create positive impacts on their teams.

We also recognized the work and loyalty of collaborators on their employment anniversaries last year. There were 10,179 employees who celebrated their 5th to 50th anniversaries of being in Soriana.

We thank all employees, customers, commercial partners and shareholders. Together we will make Soriana a better place to work and celebrate the 50th anniversary of this important Organization.

HUMAN RESOURCES

In Soriana, small vendors have a special and preferable place. They are invited to business tables and PYME fairs in their places of origin and offered preferential spaces and conditions that enable them to introduce their products to our customers. In the year we inaugurated 6 PYME fairs in the States of Morelos, Hidalgo, Michoacan, Sonora, Quintana Roo and Baja California Sur. We had a total of 150 producers and 748 new products displayed in stores of those states. Additionally, we participated in 13 Vendor Development events and look at 1,276 proposals from different suppliers that came from 23 states.

BESTPRACTICES

Soriana Universidad main objective is to promote the development Soriana collaborators through agreements with several well-recognized academic institutions of the country. Year after year we continued with this purpose and in 2017 we were able to become part of the academic development of another 530 collaborators. Likewise, we facilitated 3.7 million training hours that represents a total of 49.82 hours per employee. In other words, 4.1 monthly hours per employee.

SORIANA UNIVERSITY


FUTUREIn Organización Soriana we have integrated sustainability in all aspects of our business. From the creation of new commercial strategies to actions made towards fighting against global warming, advocating conservation of the environment and eradicating greenhouse effect supported by the 4 pillars of our Corporate Social Responsibility strategy that represent a solid platform for our customers, suppliers, collaborators, shareholders and community. These pillars were supported throughout the year through the following actions:

WIND POWERMoving forward with our Sustainability Policy, the use of renewable and clean energies is a priority in our operations. In 2017 there were supplied by renewable energy 641 business units; that is, 623.1 million kilowatts/hour (kWh) equivalent to 65% of our stores. This kept 282,876 tons of carbon dioxide (CO2) from being emitted into the atmosphere. We increased the supply of clean energy from 29.3% in 2016 to 39.9% in 2017. With the construction of the new wind farm in the state of Tamaulipas in 2018, we expect to supply the remaining business units.

WASTE MANAGEMENTIn continuity with the recycling programs, the Company contributed to preserve the environment by recycling during the year 72,752 TN of cardboard and 3,852 TN of plastic; equivalent to the energy savings of 64,988 homes in a year, saving 563,906 Mw-h of energy consumption, avoiding waste coming from 197,840 people in a year, avoiding the emission of 308,333 TN of CO2, saving 828,193 trees and saving 20,711 million gallons of water, as well as avoiding consumption of 943,342 oil barrels.

OUR FOCUS IS THE

Soriana Fundación continues placing the Mexican childhood at the center of its programs, channeling 58.7% of resources to this cause besides supporting health, education, rehabilitation and food issues, among others. In 2017, 424 institutions were supported which in turn benefitted 532,349 people. Social investment throughout the year was of $124.7 million pesos.

This year nature challenged us with the earthquakes of the month of September where thousands of people were affected. As a result of this, we took actions and installed 84 donation points throughout the country and concentrate our efforts in the states that got hit. We also fulfilled basic needs such as food, free medical checks and equipment for temporary housing. We were also able to help 114 collaborators who unfortunately were affected. The resources donated by our customers were duplicated by Soriana and the funds collected were enough to build 100 houses in the state of Oaxaca.


EXECUTIVEOFFICERS

RICARDO MARTÍN BRINGASChief Executive Officer

FRANCISCO RAMÍREZ DÍAZDirector, Mercado & Express

YUSEF ATIYEH NAVARRODirector, Real Estate

FEDERICO GUITARTE DELGADODirector, Human Resources

SERGIO MARTÍNEZ SAN GERMÁN

Chief Information Officer

RICARDO PERERA TORRES-SEPTIEN

Director, City Club & Súper City

RODRIGO BENET CÓRDOVAChief Financial Officer

JOSÉ LUIS GONZÁLEZ FLORESDirector, Audit

HUMBERTO FAYAD WOLFFChief Commercial Officer

LUIS GIRARD DE LA LASTRADirector Logistics, Distribution

GUSTAVO A. ROBLES LUQUE Director, Legal

JORGE BENLLOCH SANZDirector Híper, Súper & MEGA

BOARDOF DIRECTORSCHAIRMAN Francisco Javier Martín Bringas

DIRECTORS Francisco Javier Martín BringasCarlos Eduardo Martín BringasJuan José Martín ViñasAlberto Martín SoberónGerardo Martín SoberónAna María Martín Bringas Guillermo Torre López*Alejandro Córdoba Ruíz*

PROPIETARY SECRETARY Gustavo Armando Robles Luque

PRESIDENTE SUPLENTE Ricardo Martín Bringas

ALTERNATE DIRECTORS Ricardo Martín BringasMaría Teresa Martín BringasPedro Luis Martín Bringas Armando Martín SoberónMaría Rosa Martín SoberónGerardo José Maldonado Rodríguez*Ernesto Icazbalceta Lerma*

PRESIDENT Ernesto Icazbalceta Lerma*

SECRETARY Alejandro Córdoba Ruíz*

MEMBER Gerardo José Maldonado Rodríguez*

* Independents Boards Members

AUDIT AND CORPORATECOVERNANCE COMMITTEE

ALTERNATE SECRETARY María Enriqueta García Farfán


CONSOLIDATED FINANCIAL

STATEMENTS

Auditing and Corporate Practices Committee ReportIndependent Auditors’ Report

Consolidated Statements of Financial PositionConsolidated Statements of Profit and Other Comprehensive Income

Consolidated Statements of Changes in Stockholders’ EquityConsolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

As of and for the years ended December 31, 2017 and 2016ORGANIZACIÓN SORIANA, S. A. B. DE C. V. AND SUBSIDIARIES

26283233343637

CONTENT


Organización Soriana, S. A. B. de C. V. and Subsidiar ies Organización Soriana, S. A. B. de C. V. and Subsidiar ies

AUDITING AND CORPORATE PRACTICES COMMITTEE REPORT

BOARD OF DIRECTORS OFORGANIZACION SORIANA, S. A. B. DE C. V.

In my capacity as Chairman of the Auditing and Corporate Practices Committee and in compliance with the duties set forth in Article 43 of the Securities Exchange Act relative to issuing an annual report about the activities carried out by this Committee, (the Committee), focused on achieving a better performance of Organizacion Soriana, S.A.B. de C.V, (the Company), for the year ending on the 31st of December 2017, I would like to present the following summary of the activities performed:

a) The activities carried out by the Committee were performed in a complete independent manner, in strict compliance with provisions set forth in the Securities Exchange Act, as well as with the recommendations provided for in the Best Corporate Practices Code.

b) We reviewed the internal control system status, and we thoroughly analyzed the reports issued by the internal audit based on their work program, as well as the outcome of the activities carried out by the external auditor, reporting and following-up the implemented preventive and corrective measures, ratifying that the Company works under adequate control and auditing systems.

c) We evaluated the performance of the external auditors, Galaz, Yamazaki, Ruiz Urquiza, S. C. (member of Deloitte Touche Tohmatsu Limited), who are responsible for issuing an opinion on the reasonableness of the figures included in the financial statements of the entity and are based on the IFRS (International Financial Reporting Standard). Considering their proven technical capacity, as well as their acceptable professional performance and independence, we recommend to the Board of Directors their assignment to audit and issue the report on the financial statements of the Company and its subsidiaries for fiscal year 2017. Likewise, in such evaluation we analyzed and recommended the approval of fee proposed for the 2017 audit presented by Galaz, Yamazaki, Ruiz Urquiza, S. C. (member of Deloitte Touche Tohmatsu Limited) for the FY 2017 external audit services.

d) We reviewed the financial statements of Organizacion Soriana, S.A.B. de C.V and its subsidiaries for the year ending on December 31, 2017 and was analyzed with the external auditors of the Company their opinion and comments issued on said financial statements.

e) Follow-up to the implementation and correction of the observations made by Galaz, Yamazaki, Ruiz Urquiza, S. C. (member of Deloitte Touche Tohmatsu Limited) regarding the findings for improvement in the internal control of the company corresponding to the FY2016 audit observation report.

f) We held several meetings to review the quarter and annual financial information to be issued to the Mexican Stock Exchange. We checked for consistency with accounting principles and criteria for their elaboration as well as compliance with new modifications made to IFRS during the year, and dimensioning, in case the effects that it will have on the financial statements by adding said modifications, as well provided comments we deemed necessary and authorized their publication.

g) We evaluate existing refinancing options in the market with the purpose of improving the cost of the debt incurred in the acquisition of Controladora Comercial Mexicana, S.A.B. de C.V. (CCM), as well as the follow-up to the debt payment plan for the year.

h) We reviewed the full compliance of the Company’s covenants, obligations and commitments established in the bank and stock market loans that financed the acquisition of CCM.

i) We analyzed the evolution of interest rate hedges executed by the financial area of the Company’s during first quarter of 2017, in order to cover or limit the risk associated to the variable interest rate of the cost of the debt, as well operations in foreign currency in order to cover the exposure of the US dollar exchange rate in the import of merchandise associated with the business commercial operation.

j) We analyzed different price proposals in order to achieve the divestment of 12 stores acquired from CCM as part of the disinvestment agreement granted in October 2015 by the anti-trust commission (COFECE), from competitors and operators of the retail sector, real estate developers, investment funds and any individual or legal entity that are independent and autonomous to the Company with a real interest in participating in this process and operate said stores in the terms and conditions proposed by the COFECE. Likewise, as part of this same process, this Committee analyzed and approved the designation and hiring of an investment banker that will be responsible for the culmination of this process.

k) We reviewed the corporate restructuring process of the Company, which involved, among others, the merger process of its two main operating companies Tiendas Soriana, S.A. de C.V. (merging company) and Tiendas Comercial Mexicana, S.A. de C.V. (merged company), having valid legal effects from November 1st, 2017. Also, was reviewed the CMM corporate name change and the restructuring of the share capital in the company CCM SOR, S.A. de C.V.

March 30th, 2018

l) Was reviewed the progress of the activities concerning the impacts associated with the merger of the operating companies Tiendas Soriana, S.A. de C.V. (merging company) and Tiendas Comercial Mexicana, S.A. de C.V. (merged company) ensuring that the Company had no incidents during this process, by reviewing implementation controls, ensuring that the accounting records and financial information were adequate and consistent.

m) We held several meetings in which were analyzed and evaluated the long-term business strategy, potential business alternatives and the main investment and financing policies, highlighting among the most significant matters evaluated by this Committee: i) the analysis and strategy for improving the conditions of the cost of debt, ii) the funding of the company Distribuidora de Mejoramiento del Hogar y Construcción, SAPI (Sodimac Mexico), company derived from the association with the Chilean company SACI (Falabella) and where the Company holds a 50% of participation and iii) the acquisition the 50% of the participation that was owned by Banco Nacional de México, S.A de C.V. (Citibanamex) in the company Servicios Financieros Soriana, S.A.P.I. de C.V. (SORIBAN), joint business that operated with the Company and the subsequent sale of those shares to a subsidiary of S.A.C.I. Falabella, in order to operate SORIBAN as a joint venture that seeks to consolidate the strategy of developing a financial business with an integrated offer of services and credit products to the Company’s customers.

n) We took a close monitoring to the resolutions made at the Shareholders’ and members of the Board meetings.

o) We evaluated that the Company has internal and external mechanisms that will ensure and comply with the laws and regulations that apply.

p) Were identified and followed up the contingencies and legal proceedings as well as trials and litigation that are in process, and the result of the concluded ones.

q) Were reviewed the procedures in order to receiving and handle complaints regarding accounting, administrative, internal control and audit aspects, including the presentation of confidential complaints of the personnel regarding doubtable accounting or auditing practices.

ACTIVITIES RELATED TO CORPORATE PRACTICES

1. We requested and were informed about the processes to evaluate the performance of relevant directors. 2. We were informed about the operations performed with related parties, monitoring their transparency in strict compliance with the

normal operational business practices, and that they were properly shown in the audited financial statements of the Company.3. We reviewed the policies regarding the use and control of Company assets.4. We analyzed proposals and final results of reviews Union Agreements with the different unions in the cities with unionized

personnel.5. We reviewed the emolument package of the Chief Executive Officer, as well as those of relevant directors, according to what is

described in the audited financial statements of the Company. 6. There were no dispensations granted by the Board of Directors in regard to the provisions set forth in Article 28, paragraph III,

subsection f) of the Securities Exchange Act.7. We followed up to the resolutions and agreements adopted at the General Shareholders’ Meetings and in the sessions of the

Board of Directors.

Based on the above statements and supported on the report issued by the external auditors, the Committee has determined that Organizacion Soriana, S. A. B. de C. V. and its Subsidiaries have performed their duties under an adequate corporate governance environment and that its financial information is presented in a reasonable manner, and so we strongly make the recommendation to the Board of Directors that the financial statements of the fiscal year ending on the 31st of December 2017 be submitted to the Annual Shareholders’ Assembly for their approval.

Sincerely,

Ernesto Icazbalceta Lerma Chairman of the Auditing and Corporate Practices Committee



INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ORGANIZACIÓN SORIANA, S. A. B. DE C. V. AND SUBSIDIARIES

OPINION We have audited the accompanying consolidated financial statements of Organización Soriana, S.A.B. de C.V. and Subsidiaries (“Soriana”, the “Company” or the “Group”), which comprise the consolidated statements of financial position as of December 31, 2017 and 2016, the consolidated statements of profit and other comprehensive income, changes in stockholders’ equity and of cash flows for the years then ended, and notes to consolidated the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

BASIS FOR OPINION We conducted our audits in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and with the Ethics Code issued by the Mexican Institute of Public Accountants (IMCP Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and IMCP Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were more important in our audit of the consolidated financial statements of the current period. These matters have been addressed in the context of our audit of the consolidated financial statements as a whole and in the disclosure of our opinion thereon, and we did not express a separate opinion on those audit matters. We have determined that the matters described below are the key audit matters to be disclosed in our report.

LONG-TERM BANK AND STOCK CERTIFICATES As mentioned in Note 16 to the accompanying consolidated financial statements, the Company’s interest-bearing bank and securities debt as of December 31, 2017 and 2016 amounts to $22,941 and $25,957 respectively, which represents 32.6% and 34.7% of total liabilities, and 39.0% and 47.8% of total consolidated stockholders’ equity, respectively. Due to the significance of this line item in the consolidated financial statements, our audit procedures mainly consisted of:i. Verifying the approval of the issuance of such debt by Soriana’s Board of Directors. ii. Reading and understanding the financing agreements entered into between the bank creditors and holders of security certificates.iii. Sending bank confirmations and obtaining responses on those balances and reconciliation of those responses to the accounting

records as of December 31, 2017 and 2016.iv. Verifying the compliance with affirmative and negative covenants included in the debt agreements.v. Reviewing the correct presentation and disclosure of financial risks in the consolidated financial statements, and vi. Reviewing the appropriate presentation of the bank and security debt in the consolidated statement of financial situation.

The results of our procedures were reasonable.

(In millions of Mexican pesos)

ASSESSMENT OF THE IMPAIRMENT OF GOODWILL AND INDEFINITE-LIFE INTANGIBLE ASSETS As explained in Note 3 h) and i) to the accompanying consolidated financial statements, the Company reviews, on an annual basis, the carrying amount of long-lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amounts exceed the greater of the aforementioned amounts of the cash generating units.

Goodwill and intangible assets with indefinite useful life or not yet available for use described in Note 11 to the accompanying consolidated financial statements are subject to impairment tests at least once a year, regardless of the existence of an impairment indicator. Such intangibles represent 14.3% of total consolidated assets as of December 31, 2017 and 2016.

The estimate test was significant for our audit, because the goodwill and indefinite-life intangible asset impairment assessment involves applying significant judgments by the Company’s management in determining the assumptions and inputs related to the estimate of the recoverable value of cash generating units, primarily that related to discount rates, industry growth rate, expected gross profit margin, and projected EBITDA (earnings before interest, taxes, depreciation, amortization). Our audit procedures included, among others:i) Involving our valuation experts to support us in assessing the criteria, premises and methodology used by the Company’s

Management to determine recovery values.ii) Assessing the methodology applied to determine the value in use based on the requirements of IAS 36, Impairment of Assets.iii) Challenging the assumptions used in projected cash flows with reference to historical data and market expectations.iv) Challenging the sensitivity analyses prepared by the Company’s management, including the terminal value, and comparing the most

relevant valuation assumptions (discount rate, growth, multiples of EBITDA, multiples of sales, among others) to those commonly used for assets with these characteristics for the industry. For the significance of the amount, a change in the assumptions and conditions on the recovery of indefinite live intangible assets may result in a material effect in the amounts recorded by the Company in it consolidated financial statements.

The results of our audit tests were reasonable.



OTHER MATTERSThe Company’s management is responsible for the other information. The other information will include the other information that will be incorporated in the Annual Report that the Company must prepare pursuant to Article 33, Section I, Subsection b) of the Fourth Title, First Chapter of the General Provisions Applicable to Issuers and other Participants in the Mexican Stock Exchange and the Instructions attached to these provisions (the Provisions). The Annual Report will be available for our reading after the date of this audit report.

Our opinion on the consolidated financial statements will not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility will be to read the Annual Report, when available, and when we do so, to consider whether the other information contained therein is materially inconsistent with the consolidated financial statements or with our knowledge obtained during the audit, or it appears to contain a material error. When we read the Annual Report, we will issue the legend on the reading of the annual report required by Article 33, Section I, Subsection b), number 1.2 of the Provisions.

The accompanying consolidated financial statements have been translated into English for the convenience of readers.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTSManagement is responsible for the preparation and fair presentation of the accompanying consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters, related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTSOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,

design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• We obtain sufficient and adequate evidence regarding the financial information of the companies within the Group to express an opinion on the consolidated financial statements. We are responsible for the management, supervision and performance of the Group’s audit. We are solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Galaz, Yamazaki, Ruiz Urquiza, S. C.Member of Deloitte Touche Tohmatsu Limited

C. P. C. Agustín Martínez TamezMarch 30, 2018



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2017 and 2016(In millions of Mexican pesos)

NOTE 2017 2016

ASSETSCurrent assets:Cash and cash equivalents 5 $ 3,666 $ 2,719Trade accounts receivable, net 6 1,880 1,874

Other accounts receivable 6 4,276 4,601Inventories 7 26,502 25,968Assets held for sale 8 1,561 1,499

Total current assets 37,885 36,661Property, furniture and equipment, net 10 69,969 70,450Intangible assets, net 11 20,224 20,798

Investments in associates and joint ventures 1,180 1,081Other assets 82 87

Total Assets $ 129,340 $ 129,077

LIABILITIES AND STOCKHOLDERS’ EQUITYShort-term liabilities:Trade accounts payable $ 27,876 $ 28,056Debt securities and short-term debt 16 4,937 3,055Short-term bank debt 16 600 1,500Liabilities related to assets available for sale 8 and 22 181 186Other accounts payable 17 4,736 4,636

Total short-term liabilities 38,330 37,433Non-current liabilities:Long-term debt 16 17,404 21,402Employee benefits 18 771 635Deferred income tax 22 12,037 13,116Other liabilities 12 1,916 2,193

Total long-term liabilities 32,128 37,346Total Liabilities 70,458 74,779

Commitments and contingencies 23

Stockholders’ equity: 19Capital stock 1,253 1,253Additional paid-in capital 977 977Paid-in capital 2,230 2,230Reserve for repurchase of shares 550 550Retained earnings 51,554 47,367Consolidated net income of the year 4,580 4,187Premium paid for acquisition of non-controlling interest (250) (250)Accumulated other comprehensive income (16) (18)Stockholders' equity attributable to controlling interest 58,648 54,066Non-controlling interest 234 232

Total stockholders’ equity 58,882 54,298Total Liabilities and Stockholders’ Equity $ 129,340 $ 129,077

The accompanying notes are an integral part of these consolidated financial statements.

Lic. Rodrigo Jesús Benet CórdovaChief Financial Officer

C.P. Jorge Alberto Reyes MoraChief Controller

CONSOLIDATED STATEMENTS OF PROFITAND OTHER COMPREHENSIVE INCOMEFor the years ended December 31, 2017 and 2016(In millions of Mexican pesos)

NOTE 2017 2016

Net sales $ 150,175 $ 145,783

Other revenues 20 3,462 3,739

Total revenues 153,637 149,522

Cost of sales (119,281) (116,361)

GROSS PROFIT 34,356 33,161General expenses (25,206) (24,785)

OPERATING PROFIT 9,150 8,376Interest expense, net 21 (2,197) (1,892)

Equity in income of associates and joint ventures (28) 78

INCOME BEFORE TAX PROVISIONS 6,925 6,562Income tax provision: 22

Current income tax (3,413) (2,914)

Deferred income tax 1,094 560

(2,319) (2,354)

CONSOLIDATED NET INCOME FOR THE YEAR 4,606 4,208Other comprehensive income:

Item that will not be reclassified to consolidated net income:

Remeasurement of defined benefit obligation (33) -

Item that will be reclassified to profit or loss in the future:

Net fair value gain on cash flow hedge 35

2 -

Total consolidated comprehensive income $ 4,608 $ 4,208

Year profit attributable to:

Controlling interest 4,580 4,187

Noncontrolling interest 26 21

$ 4,606 $ 4,208

Consolidated comprehensive income attributable to

Controlling interest 4,582 4,187

Noncontrolling interest 26 21

$ 4,608 $ 4,208

Earnings per share in Mexican pesos 3.q and 19 $ 2.56 $ 2.34






CONSOLIDATED STATEMENTS OF CHANGESIN STOCKHOLDERS’ EQUITY For the years ended December 31, 2017 and 2016(In millions of Mexican pesos)

Capital stock

Additional Paid-in Capital

Reserve for Repurchase of

Shares

Retained Earnings

ConsolidatedNet Incomeof the Year

Premium Paid for Acquisition of Non-Controlling Interest

Accumulated OtherComprehensive

Income

Total - Holding Company

Non-Controlling Interest

TotalStockholders’

Equity

Balances as of January 1, 2016 $ 1,253 $ 977 $ 550 $ 43,641 $ 3,726 $ - $ (18) $ 50,129 $ - $ 50,129

Transfer of prior year’s result 3,726 (3,726) -

Non-controlling interest from the purchase of CCM (Note 9) 1,242 1,242

Acquisition of non-controlling interest (Note 9) (250) (250) (1,031) (1,281)

Comprehensive net income 4,187 4,187 21 4,208

Balances as of December 31, 2016 1,253 977 550 47,367 4,187 (250) (18) 54,066 232 54,298

Transfer of prior year’s result

Non-controlling interest from the purchase of CCM (Note 9) 4,187 (4,187) -

Acquisition of non-controlling interest (Note 9) (24) (24)

Comprehensive net income 4,580 2 4,582 26 4,608

Balances as of December 31, 2017 (Note 19) $ 1,253 $ 977 $ 550 $ 51,554 $ 4,580 $ (250) $ (16) $ 58,648 $ 234 $ 58,882




CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2017 and 2016(In millions of Mexican pesos)

2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES:Income before income tax provisions $ 6,925 $ 6,562

Adjustment for:

Depreciation and amortization 3,251 3,464

Gain on sale of furniture and equipment (166) (454)

Equity income of associates and joint ventures 28 (78)

Other (35) 118

Interest expense 2,453 1,903

12,456 11,515

CHANGES IN WORKING CAPITAL:Trade accounts receivable (6) 510

Inventories (582) (3,170)

Trade accounts payable (145) 3,015

Other accounts receivable and advance payments 330 69

Other accounts payable (25) (907)

Income taxes paid (3,703) (1,730)

Net cash provided by operating activities 8,325 9,302

CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, furniture and equipment, and intangible assets (2,105) (2,587)

Purchase of business and non-controlling interest - (35,390)

Cash received on business acquisition - 1,771

Other payments to acquire capital from other entities - (225)

Proceeds from sale of furniture and equipment 529 1,172

Other investment concepts (127) 145

Net cash used in investing activities (1,703) (35,114)

CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings 155,490 67,060

Repayment of borrowings (158,506) (59,085)

Interest paid (2,453) (1,902)

Finance lease payments (206) (217)

Net cash (used in) provided by financing activities (5,675) 5,856

Net increase (decrease) in cash and cash equivalents 947 (19,956)

Cash and cash equivalents at the beginning of the year 2,719 22,675

Cash and cash equivalents at the end of the year $ 3,666 $ 2,719


NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the years ended December 31, 2017 and 2016(In millions of Mexican pesos)

1. ACTIVITIES

Organización Soriana, S. A. B. de C. V. and Subsidiaries (Soriana or the Company) is a commercial retail business in Mexico with 100% Mexican capital. Founded in 1968, Soriana operates several formats of supermarket stores and markets a wide variety of food, clothing, general merchandise, health products and basic household services under retail, medium wholesale and wholesale schemes. The shares representing Soriana’s capital stock are listed on the Mexican Stock Exchange (BMV) since 1987, under the ticker symbol SORIANA. The address of Soriana’s corporate headquarters is Alejandro de Rodas. 3102-A, Col. Cumbres 8° Sector, C.P. 64610, Monterrey, N.L., México.

In order to consolidate its position, Soriana has an ongoing growth program and is considered one of Mexico’s largest employers. Soriana ended 2017 with a presence in 279 cities among the 32 states of Mexico and 4.3 million square meters of sales floor distributed through its nine store formats. As of the close of 2017, Soriana has a total of 824 stores in the following formats: 270 Hyper, 142 Markets, 129 Super, 103 Express, 35 City Club, 69 Mega Comercial Mexicana, 40 Comercial Mexicana, 33 Bodega Comercial Mexicana and 3 Alprecio.

Soriana also operates 116 convenience stores under the name of Super City in a combined regime operated primarily by own stores and a few franchises; furthermore, the Company performs real estate business activities comprising leases of commercial premises adjacent to each store as part of the commercial area, and conducts commercial developments.

At the end of 2016, Soriana reached an agreement with its partner Banco Nacional de México, S. A. (Citibanamex), to acquire 50% of its shares in the capital stock of the financial institution named Servicios Financieros Soriana, S.A.P.I. de C.V., Sociedad Financiera de Objeto Múltiple, Compañía Regulada, called “SORIBAN”. SORIBAN is a financial institution that offers different added value financial products to the customers that visit its stores. Currently, SORIBAN’S product portfolio mainly consists of placing credit cards. The closing of the transaction was subject to contractual conditions and various approvals from the competition and financial regulatory authorities, which were met in October 2017 and, therefore, the acquisition of the shares by Soriana from Citibanamex became effective. The acquired shares were subsequently sold in the same month to a subsidiary of Chilean company S.A.C.I. Falabella (Falabella).

In 2016, Soriana established a partnership with Falabella for the joint venture of a business of specialist stores focused on the home improvement and construction materials in Mexico, by constituting the company Sociedad Distribuidora de Mejoramiento del Hogar y Construcción, S.A.P.I. de C.V. (Sodimac Mexico), and the opening of the first store of this type of format in the country is expected by the second semester of 2018. As part of the partnership, in parallel, in 2017, the implementation of a financial business commenced, which consists of offering credit services and products and financial services, which will be provided at both the new stores of Sodimac Mexico to be developed, as well as at all the current formats of Soriana, through Sociedad de Facilidades Multirotativas, S.A.P.I. de C.V. (Falabella Financial). In 2017, loans were granted at the formats of Soriana through the operation of 45 financial modules, which at the closing of 2017, were located at the different formats of Soriana for the origination of credit cards.

The term the “Company” as used herein, refers to Soriana together with its consolidated subsidiaries.

2. BASIS OF PRESENTATION

a. Application of new and revised International Financing Reporting Standards (“IFRSs” or “IAS”) and interpretations that are mandatorily effective for the current yearIn the current year, the Company has applied a number of amendments to IFRSs and new Interpretation issued by the International Accounting Standards Board (“IASB”) that are mandatorily effective for an accounting period that begins on or after January 1, 2017.

AMENDMENTS TO IAS 7, DISCLOSURE INITIATIVEThe Company has applied these amendments for the first time in the current year. The amendments require a company to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes.

The Company’s liabilities arising from financing activities consist of borrowings (note 16). A reconciliation between the opening and closing balances of these items is provided in note 16. Consistent with the transition provisions of the amendments, the Company has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 16, the application of these amendments has had no impact on the Company’s consolidated financial statements.



AMENDMENTS TO IAS 12, RECOGNITION OF DEFERRED TAX ASSETS FOR UNREALIZED LOSSESThe Company has applied these amendments for the first time in the current year. The amendments clarify how a company should evaluate whether there will be sufficient future taxable profits against which it can utilize a deductible temporary difference.

The application of these amendments has had no impact on the Company’s consolidated financial statements as the Company already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.

ANNUAL IMPROVEMENTS TO IFRSS 2014-2016 CYCLEThe Company has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs 2014-2016 Cycle for the first time in the current year. The other amendments included in this package are not yet mandatorily effective and they have not been early adopted by the Company (see note 2b).

IFRS 12 states that a company need not provide summarized financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.

The application of these amendments has had no effect on the Company’s consolidated financial statements as none of the Company’s interests in these entities are classified, or included in a disposal group that is classified, as held for sale.

b. New and revised IFRSs in issue but not yet effectiveThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9, Financial Instruments (effective beginning January 1, 2018)IFRS 15, Revenue from Contracts with Customers (effective beginning January 1, 2018)IFRS 16, Leases (effective beginning January 1, 2019)Amendments to IFRS 10 and IAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective beginning January 1, 2018)Amendments to IAS 40, Transfers of Investment Property (effective beginning January 1, 2018)Amendments to IFRSs Annual Improvements to IFRS Standards 2014-2016 Cycle (effective beginning January 1, 2018)IFRIC 22, Foreign Currency Transactions and Advance Consideration (effective beginning January 1, 2018)IFRIC 23, Uncertainty over Income Tax Treatments (effective beginning January 1, 2019)

IFRS 9, FINANCIAL INSTRUMENTSIFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition and in November 2014 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9:

. All recognized financial assets that are within the scope of IFRS 9 Financial Instruments are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in net income (loss).

. With regard to the measurement of financial liabilities designated as of fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires a company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.

. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about a company’s risk management activities have also been introduced.

The Company’s Management anticipates that the application of IFRS 9 in the future may not have a material impact on amount reported in respect of the Company’s financial assets and financial liabilities.

IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18, Revenue, IAS 11, Construction Contracts, and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract (s) with customerStep 2: Identify the performance obligations in the contractStep 3: Determine the transaction priceStep 4: Allocate the transaction price to the performance obligations in the contractStep 5: Recognize revenue when (or as) the Company satisfies a performance obligation

Under IFRS 15, a company recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The Company recognizes revenue from the following major sources:

. Income for the sale of merchandise, including the Loyalty Program described in note 3o.

. Income from leases; and

. Service revenues

The Company’s Management anticipates that the application of IFRS 15 in the future may not have a material impact on the amounts reported and disclosures made in the Company´s consolidated financial statements.



IFRS 16, LEASES IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 was issued in January 2017 and will supersede the current lease guidance including IAS 17, Leases, and the related interpretations when it becomes effective.

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. “Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting and is replaced by a model where a right-of –use asset and a corresponding liability have to recognized for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payment as well as the impact of lease modifications, among the others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be split into a principal and interest portion which will be presented as financing and operating cash flows respectively.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

However, a lessee may elect to account for lease payments as an expense on a straight-line basis over the lease term for leases with a lease term of 12 months or less and containing no purchase options (this election is made by class of underlying asset); and leases where the underlying asset has a low value when new, such as personal computers or small items of office furniture (this election can be made on a lease-by-lease basis).

IFRS 16 establishes different transitional provisions, including retrospective application or the modified retrospective application where the comparative period is not restated.

The Company is in the process of determining the potential impacts that will be derived in its consolidated financial statements by the adoption of this new standard, although due to the nature of its operations, would be expected to have an relevant impact, of which the Company is in the process of evaluation and analysis.

AMENDMENTS TO IFRS 10 AND IAS 28, SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR AND ITS ASSOCIATE OR JOINT VENTUREThe amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognized in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.

The effective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments is permitted. The directors of the Company anticipate that the application of these amendments may have an impact on the Company’s consolidated financial statements in future periods should such transactions arise.

Management of the Company does not expect significant impacts as a result of the adoption of these amendments.

AMENDMENTS TO IAS 40, TRANSFERS OF INVESTMENT PROPERTYThe amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in IAS 40 may evidence a change in use, and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties).

The amendments are effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. Entities can apply the amendments either retrospectively (if this is possible without the use of hindsight) or prospectively. Specific transition provisions apply.

The directors of the Company anticipate that the application of these amendments may have an impact on the Company’s consolidated financial statements in future periods should there be a change in use of any of its properties.

Management of the Company does not expect significant impacts as a result of the adoption of these amendments.

ANNUAL IMPROVEMENTS TO IFRSS 2014 - 2016 CYCLEThe Annual Improvements include amendments to IFRS 1 and IAS 28 which are not yet mandatorily effective for the Company. The package also includes amendments to IFRS 12 which is mandatorily effective for the Company in the current year.

The amendments to IAS 28 clarify that the option for a venture capital organization and other similar entities to measure investments in associates and joint ventures at FVTPL is available separately for each associate or joint venture, and that election should be made at initial recognition of the associate or joint venture. In respect of the option for an company that is not an investment entity (IE) to retain the fair value measurement applied by its associates and joint ventures that are IEs when applying the equity method, the amendments make a similar clarification that this choice is available for each IE associate or IE joint venture. The amendments apply retrospectively with earlier application permitted.

Both the amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after January 1, 2018. The management of the Company do not anticipate that the application of the amendments in the future will have any impact on the Company consolidated financial statements, because the Company does not have any associate or joint venture that is an investment company.

IFRIC 22, FOREIGN CURRENCY TRANSACTIONS AND ADVANCE CONSIDERATION IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (e.g. a non-refundable deposit or deferred revenue).

The Interpretation specifies that the date of transaction is the date on which the company initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires a company to determine the date of transaction for each payment or receipt of advance consideration.

The Interpretation is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. Entities can apply the Interpretation either retrospectively or prospectively. Specific transition provisions apply to prospective application.

Management of the Company does not expect impacts as a result of these amendments.

IFRIC 23, UNCERTAINTY OVER INCOME TAX TREATMENTSThe interpretation addresses the determination of taxable profit (tax loss, tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers:

. Whether tax treatments should be considered collectively

. Assumptions for taxation authorities’ examinations

. The determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and

. The effect of changes in fact and circumstances



The Management of the Company do not anticipate that the application of the amendments in the future will have an impact on the Company’s consolidated financial statements, since when it currently determines the recording of the effects of income taxes on its financial statements, it makes considerations similar to those contained by the interpretation.

ANNUAL IMPROVEMENTS TO IFRSS 2015 - 2017 CYCLEThe Annual Improvements include amendments to IFRS 3 and IFRS 11, IAS 12 and IAS 23, which are effective for annual periods beginning on or after January 1, 2019.

Amendments to IFRS 3 clarify that when a company obtains control of a business that is a joint operation, it remeasures previously held interest in that business. The amendments to IFRS 11clarify that when a company obtains control of a business that in not a joint operation the company does not remeasure previously held interest in that business.

Amendments to IAS 12 clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognized in profit or loss, regarding of how the tax arises.

Amendments to IAS 23 clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that a company borrows generally when calculating the capitalization on general borrowings.

Management of the Company does not expect impacts as a result of these amendments.

c. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and which are effective as of December 31, 2017.

d. Basis of measurement The consolidated financial statements of the Company have been prepared on the historical cost basis. i. Historical cost

Historical cost is generally based on the fair value of the consideration given in exchange for assets.ii. Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

e. Classification of costs and expenses Costs and expenses presented in the consolidated statements of profit and other comprehensive income were classified based on their function; therefore, cost of sales was separated from the remaining general costs and expenses as well as the operating income, which allows a better understanding of the operational performanceof the business.

f. Basis of consolidationThe consolidated financial statements incorporate the financial statements of the Soriana and its subsidiaries controlled by it. Control in compliance with IFRS 10, Consolidated Financial Statements, is achieved when Soriana:

. Has power over the investee;

. Is exposed, or has rights, to variable returns from its involvement with the investee; and

. Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

The main subsidiaries of Soriana, of which it has 100% of its shares, are:

. Tiendas Soriana, S. A. de C. V. (“Tiendas Soriana”, operator of retail stores). (1)

. Tiendas Comercial Mexicana, S.A. de C.V. (operator of retail stores). (1)

. CCM SOR, S. A. de C. V. (CCM) (previously Controladora Comercial Mexicana, S.A.B. de C.V.) (Stockholder). (2)

. Service companies that group several entities.

. Companies in the real estate sector that comprise several entities.

(1) On September 29, 2017, at the extraordinary shareholders’ meeting, the shareholders agreed the merger of Tiendas Comercial Mexicana, S. A. de C. V. as absorbed

company, with Tiendas Soriana, S. A. de C. V. as absorbing company. This merger took effect beginning November 1, 2017. (2) On April 27, 2017, at the general ordinary and extraordinary shareholders’ meeting, the shareholders agreed to change the corporate name to CCM SOR, S. A. de C. V.

For consolidation purposes, all balance and transaction between affiliated companies have been eliminated.

g. Functional currency The amounts included in the financial statements of each one of the companies composing Soriana are measured using the currency of the primary economic environment in which each Company operates; i.e. their functional currency. The consolidated financial statements are presented in Mexican pesos and have been rounded up to thousands, unless the contrary is specified. The Company’s functional currency is the Mexican peso.

3. SIGNIFICANT ACCOUNTING POLICIES

The most significant accounting policies followed by the Company are summarized as follows:

a. Cash and cash equivalents Cash equivalents consist mainly of short-term bank deposits and investments that are readily convertible to cash, subject to a low risk of material changes in value. Cash is stated at nominal value and cash equivalents are valued at fair value. The differences between the value at the date of the investment and at the date of the consolidated statement of financial position are recognized in the consolidated statements of profit and other comprehensive income as financial income.

b. Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

FINANCIAL ASSETSFinancial assets are initially classified, depending on the nature and purpose of the financial assets, into the following categories and it is determined at initial recognition: i) financial assets ‘at fair value with changes through profit or loss’ (FVTPL), ii) ‘held-to-maturity’ investments, iii) ‘available-for-sale’ (AFS) financial assets, and iv) ‘loans and receivables’. The Company only has financial assets classified as trade accounts receivable, based on fixed or determinable payments, which are not traded in an active market. They are valued at amortized cost using the effective interest method, less any impairment. Interest income is recognized applying the effective interest rate, except for short-term accounts receivable where the interest recognition is insignificant.

The effective interest method is a method to calculate the amortized cost of a financial instrument and to allocate financial income or cost during the relevant period. The effective interest rate is the rate that discounts estimated future cash inflows (including all fees and basis points paid or received that are a comprehensive part of the effective interest rate, transaction costs and other premiums or discounts) during the expected life of the financial asset or liability or, where appropriate, a shorter period. Such amount represents the carrying amount upon initial recognition.



Financial assets are subject to impairment tests at the end of each reporting period. The impairment of trade accounts receivable is recognized reducing the asset value through an allowance for doubtful accounts. When an account receivable is deemed uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

DERECOGNITION OF FINANCIAL ASSETSThe Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

FINANCIAL LIABILITIES Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

Financial liabilities are initially valued at fair value. The transaction costs that are directly attributable to the acquisition or issuance of financial liabilities (other than financial liabilities at fair value with changes in earnings) are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition.For other financial liabilities (including loans and debt) are measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees, and points paid or received that form an integral part of the effective interest rate transactions cost and other income or discounts) through the expected life of the financial, liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

The Company’s financial liabilities include trade accounts payable, other accounts payable, debt, and financial lease obligations. The cost of transaction directly attributable to the acquisition of financial liabilities to FVTPL are recognized directly in profit or loss.

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position if, and only if the Company: i) has a legal right to offset such amounts, and ii) intends to settle upon realizing the asset and liability simultaneously.

DERECOGNITION OF FINANCIAL LIABILITIESThe Company derecognizes financial liabilities when, and only when, the Company obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

c. Derivative financial instruments and hedging The Company recognizes derivative financial instruments in the statement of financial position at their respective fair values either as financial assets or financial liabilities in accordance with the rights and obligations set forth in the same contracts. Soriana’s policy to contract derivative instruments, occurs only for hedging purposes in relation to the Company’s operational activity, which purpose is to safeguard the liquidity of the Company and stockholders’ interests, reducing the risk of exposure to external variables of the market, such as exchange rate risks and interest risks, among others.

To protect itself from the risks arising from fluctuations in exchange rates and interest rate (TIIE), the Company evaluates the use of derivative financial instruments, primarily using exchange rate hedge forwards and interest rate swaps for interest rate hedging. The Company’s policy exclusively consists of transactions for hedging purposes, and never conduct speculative transactions with derivative financial instruments.

Derivatives are contracted in order to hedge risks arising mainly from business operating activities and fulfill all hedging requirements; their designation is documented at inception of the hedging transaction, describing the objective, characteristics, accounting recognition and how effectiveness will be measured, applicable to that transaction.

Changes in the valuation of hedging derivatives are recognized according to the type of hedging: (i) when they are fair value hedged, fluctuations of both the derivative and the hedged item are valued at fair value and recognized in the statement of profit or loss; (ii) when they are cash flow hedges, the effective portion is temporarily recognized in other comprehensive income and is recycled to profit or loss when the hedged item affects it; the ineffective portion is recognized immediately in profit or loss.

The Company cancels hedge accounting when the derivative has expired, been sold, been cancelled or been exercised, when the derivative does no reach high effectiveness to settle the changes in fair value or cash flows of the hedged item, or when the Company decides to cancel the hedging designation. The Company has a financial risk committee that consists of chief executives, who report to the Audit and Corporate Practices Committee, which analyzes and assesses the different alternatives, and proposes to the Board of Directors for their approval, in order to ensure the fulfillment of the Company’s financial strategies.

It is the Company’s policy to contract derivative financial instruments with institutions with high solvency and proven credit quality.

The Company designates counterparties as calculation agents. In addition, the Company performs periodic estimates to monitor the behavior of the risk factors (exchange rate), allowing it to permanently assess the outcome of the contracted hedges.

d. Inventories and cost of sales Inventories are recorded at acquisition cost and are valued at average cost determined through the perpetual inventory method.

Cost of sales is stated at average cost of the dates on which the sales were made.

Purchase allowances obtained from suppliers are recognized as part of the value of the inventory and recorded as a reduction in cost of sales as the goods for which the allowance is earned are sold.

e. Assets and liabilities held for sale Long-lived assets and the groups of assets available are classified as held for sale if their carrying amount will be recovered through a sale transaction and not through their continued use. This condition is deemed met solely when the sale is highly probable and the asset (or group of assets for sale) is available for immediate sale at its current status. The Company suspends the depreciation of such assets since they are classified as available for sale.

They are presented as short-term assets and liabilities in the consolidated statements of financial position because the Company estimates their realization in a period no longer than one year, and they are recorded at the lesser of their carrying amount or fair value less disposal costs.

As disclosed in Note 8, in October 2015, Soriana received a notification from the Federal Economic Competition Commission (COFECE) on a favorable decision on conditions with respect to the purchase agreement entered into in due course with CCM. In that decision, the COFECE provided the obligation of the Company to conduct the sale of 12 of the 143 stores acquired from CCM. Soriana presents in the consolidated statement of financial position, assets and liabilities available for sale related to the stores that will be divested by the Company in order to comply with the decision issued by the authority. At the end of 2017, the Company failed to realize any transaction for the sale of the 12 stores to divest from CCM.



f. Property, furniture and equipment, netThe Company records its property, furniture and equipment at historical cost and is presented net of its accumulated depreciation and any accumulated loss for impairment.

Depreciation is calculated using the straight-line method considering the residual value based on the useful lives of the assets estimated by the Company, in order to depreciate separately each of the items of property, furniture and equipment that have a significant cost in relation to the total cost of the item (components). The estimated useful lives for the Company’s assets are as follows:

Buildings:

Structure 80 years

Hydro-sanitary and electric installations and data network 25 years

Finishing work 15 years

Furniture and equipment 3 to 15 years

Vehicles 3 to 12 years

Leasehold improvements The shorter of either the useful life of the assets or the related lease term

The estimated useful lives, residual values and depreciation method are reviewed at year-end, and the effect of any changes are recognized prospectively.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets during the construction stage and until their operation and / or exploitation commences. Income earned on the temporary investment of specific borrowings to be used in qualifying assets is deducted from the borrowing costs eligible to be qualified. All other borrowing costs are recognized in earnings in the period in which they are incurred.

Assets held under finance leases are depreciated according to the related lease term considering the existing renewals in the contract.

The gain or loss arising from the sale or retirement of an item of property, furniture and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the results of the period.

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at historical cost, including transaction costs and are presented within in the line items of land and buildings, as the same historical cost policy is used in both cases.

g. Investments in associates and joint ventures An associate is a Company over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it does not imply control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results, assets and liabilities of associates and joint ventures are incorporated to the Company’s consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates and joint ventures are initially recognized in the consolidated statement of financial position at cost, adjusted for changes subsequent to the acquisition for the Company’s interest in the associate company and joint ventures net assets, less any impairment in the individual value of the investments.

Losses of an associate company in excess of the Company’s interest therein are recognized provided the Company has incurred any legal or constructive obligations or has made payments on behalf of the associate and joint ventures.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized and joint ventures at the acquisition date is recognized as goodwill. Goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in earnings.

The requirements of IAS 39, Recognition and Measurement, are applied to determine whether it is necessary to recognize any impairment loss with respect to the Company’s investment in an associate and joint ventures. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset, comparing its recoverable amount (higher of value in use and fair value less costs of sale) with its carrying amount. Any impairment loss recognized is part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When the Company conducts transactions with an associated company and joint ventures, unrealized profits and losses are eliminated to the proportion of the Company’s interests in such associated company and joint ventures.

The equity in income of associates and joint ventures are as follows:

2017 2016

Soriban/Falabella Financial $ 21 $ 82

SODIMAC México (63) (4)

Other 14

Equity in income of associates and joint ventures $ (28) $ 78

As mentioned in Note 1, SODIMAC Mexico and Falabella Financial businesses linked to the partnership with Falabella were constituted in the fourth quarter of 2016. In 2017, SODIMAC Mexico business continued at the pre-operating stage, while that of Falabella Financial already commenced operations at the stores with Soriana format.

h. Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the fair values of the assets transferred by the Company, less the liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control on the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred. At the acquisition date, the identified assets acquired and the liabilities assumed are recognized at their fair value, except that:

. Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;

. Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 9), less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash generating unit (or groups of cash-generating units) that is expected to be benefited from the synergies of the combination.



A cash generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indicator that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is first allocated to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any goodwill impairment loss is recognized directly in profit or loss. A goodwill impairment loss recognized is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquire (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the company’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquirer’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.

The accounting treatment for changes in the fair value of the contingent consideration that does not qualify as measurement period adjustments depends on how the contingent consideration is classified. The contingent consideration classified as equity is not remeasured at subsequent reporting dates in conformity with IAS 39 or IAS 37, Provisions, Contingent Liabilities and Contingent Assets, as the case may be, recognizing the corresponding gain or loss in the statement of profit of loss.

When a business combination is achieved by stages, the Company’s previously held equity interest in the acquiree is remeasured at its acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

i. Intangible assets The Company classifies intangible assets according to their estimated useful life in two types: indefinite and defined lives.

Intangible assets with indefinite useful lives are recognized at acquisition cost. Rights to lease agreements, certain favorable agreements, and an iconic trademark associated with the acquisition of CCM have been classified as indefinite-life assets.

The Company records intangible assets with definite useful lives at cost less accumulated amortization. Acquired software is measured at cost less accumulated amortization. Expenditures for software acquisition and development are capitalized when classified as development activities and generate future economic benefits for the Company and can be measured reliably otherwise they are recognized in the consolidated statement of profit and other comprehensive income when incurred. The amortization related to intangible assets is included in operating expenses.

Intangible assets with defined lives are amortized using the straight-line method over the estimated useful lives determined by the Company. Such amortization is recorded under general expenses.

For the purposes of carrying out impairment tests, the indefinite-life intangible asset mainly represented by the assignment of rights to lease agreements were assigned to Gigante’s self-service stores acquired, and certain favorable agreements and an iconic trademark associated with the acquisition of CCM were assigned to CMM’s self-service stores acquired. The following factors are considered to assess the recovery value for impairment test purposes:

. Perpetual growth rate estimated based on the inflation of the economy where the Company operates.

. The discount rate based on the weighted capital cost and the market participants’ variables to be considered.

. Size of the market where the supermarket stores operates for recoverable value estimate purposes.

. Behavior of primary costs of raw materials and input, and the necessary expenses to maintain fixed assets in conditions to be used.

. Future cash flows discounted at present value based on financial projection of a perpetuity value, considering estimates at the valuation date based on the budget approved by the Company´s management, which include the latest trends known in supermarket stores and in the industry.

j. Impairment of tangible and intangible assets The Company reviews the carrying amounts of long-lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amounts exceed the greater of the aforementioned amounts of the Company’s cash generating units.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indicator that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell it and the value in use. In assessing value in use, the estimated future cash flows are discounted at their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in earnings.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in earnings.

Under IAS 36, the Company identifies the possible impairment of intangible assets with indefinite useful lives considering the cash generating unit at the operating segment level established by the Company in accordance with IFRS 8, Operating Segments.

k. LeasingLease agreements are classified as financial leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Under IAS 17, Leases, the Company classifies its property leases as financial or operating, mainly assessing the principles established in such standard. The most relevant guidelines in the Company’s leases are as follows:

i) The lease term covers most of the economic life of the asset, even if ownership is not transferred at the end of the transaction;ii) At the inception of the lease agreement, the present value of the minimum lease payments is substantially equivalent to the fair value of the leased asset;iii) If the lessee can cancel the lease agreement, and the lessor’s losses associated with the cancellation are borne by the lessee.



THE COMPANY AS A LESSEE:Assets held under finance leases are recognized as assets of the Company at the lower of the fair value at the inception of the lease or the present value of the minimum lease payments determined using the interest rate implicit in the lease if it is feasible to be determined or the incremental rate of a loan with similar conditions, amortized and depreciated according to the term of the lease agreement considering its respective renewals. The corresponding liability to the lessee is included in the consolidated statement of financial position as a finance lease obligation, and is presented under the item of other long-term liabilities.

Lease payments are apportioned between financial expenses and the reduction of the lease obligations so as to achieve a constant interest rate on the remaining balance of the liability. Financial expenses are directly charged to results, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company´s policy on borrowing costs (see Note 4f). Contingent rentals related to sale percentages or adjustments for inflation are recognized as expenses in the periods in which they are incurred.

Operating lease payments are charged to results using the straight-line method during the lease term, except where another systematic apportionment basis is more representative to reflect the pattern of the lease benefits for the user more adequately. Currently, the Company does not recognize leases of land as finance leases.

THE COMPANY AS LESSOR:Rental income from operating leases is recognized using the straight-line method during the term of the relevant lease. Initial direct costs incurred in the negotiation and agreement of an operating lease are added to the carrying amount of the leased asset and recognized using the straight-line method during the lease term.

l. Employee benefitsDEFINED CONTRIBUTION BENEFIT PLAN Benefits associated with retirement benefit plans are recognized as an expense when employees have rendered service entitling them to such benefits.

DEFINED BENEFIT PLANFor defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial calculations being carried out at the end of each reporting period. Actuarial remeasurements are recognized within comprehensive income and are not reclassified to earnings. Past service costs are recognized immediately in earnings. The Company presents service costs within cost of sales and operating expenses in the consolidated statements of profit and comprehensive income, and presents net interest cost within interest cost in the statements of profit and other comprehensive income. Employee retirement benefits are recognized in the consolidated statement of financial position and represent the present value of the defined benefit obligation less the fair value of the plan assets.

A subsidiary of the Company has a pension plan with defined benefits that consists of a lump payment based on their remuneration, according to their age and years of service.

Actuarial gains and losses arising from adjustments based on experience and changes in actuarial assumptions are debited or credited to stockholders’ equity in other comprehensive income items in the period in which they arise.

Any liability for labor settlement is recorded by the Company when the offer of settlement cannot be cancelled and when the Company recognizes the related restructuring cost.

DIRECT EMPLOYEE BENEFITSDirect employee benefits are valued in proportion to the services rendered, considering current salaries and recognizing the liability as incurred. This includes primarily statutory employee profit sharing payable, compensated absences, such as vacation and vacation premiums, and incentives.

STATUTORY EMPLOYEE PROFIT SHARING (PTU)PTU is recorded in the results of the year in which it is incurred and presented under general expenses in the consolidated statements of profit and other comprehensive income. PTU is determined based on the taxable income in accordance with Section I of Article 9 of the Income Tax Law.

m. ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) that arise from a past event, that will probably result in the use of economic resources, and that can be reasonably estimated.

The amount recognized as a provision is the best estimate of the expense necessary to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount represents the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, an account receivable is recognized as an asset if it is virtually certain that a reimbursement will be received and the amount of the account receivable can be measured reliably.

Provisions are classified as either current or non-current according to the estimated period of time to meet the covered obligations.

n. Foreign currency transactions and exchange differences Monetary assets and liabilities denominated in foreign currencies, mainly U.S. dollars, are expressed in national currency at the exchange rate in effect at the close date. Exchange differences arising from fluctuations in the exchange rate between the date the transactions were conducted and the date of settlement or valuation at the date of the consolidated statements of financial position are recorded in net financial cost.

o. Revenue recognition In accordance with IAS 18, Revenues, revenues from the sale of goods are recognized at the time the risks and rewards derived from ownership of the goods are transferred to the customer, which generally coincides when they are delivered on the sales floor; other income is recognized when it is earned.

Revenues are calculated at the fair value of the consideration received or receivable, taking into account the amount of customer returns, rebates and other similar allowances.

Through its Loyalty Program, the Company performs certain promotions whereby it provides incentives for customers, whose value is linked to either a percentage of the sales price (e.g. electronic money) or by granting points for merchandise purchases made. Points or electronic money can be used by customers to settle future purchases within stores that are operated by Soriana; in the stores acquired from CCM, the benefits of the Loyalty Program with which the Company operates may be redeemed in said branches or in certain third-party establishments. The sale of merchandise and rendering of points or electronic money according to the Loyalty Program are recorded as revenue transactions with multiple elements and the fair value of the consideration received (points or electronic money granted) is distributed among the merchandise that generated them. The consideration allocated to the program’s benefits is valued by reference to its fair value (the amount by which such credits by incentives could be sold separately). Such consideration is not recognized as revenue at the time of the initial sale transaction; rather it is deferred and recognized as revenues when the points or electronic money have been used by the customer.

The Company recognizes the commissions from transactions related to the sale of airtime on cell phones as an agent.

p. Income taxes

Income tax expense represents the sum of current tax and deferred income tax.



CURRENT TAXESCurrent income tax (“ISR”) is recognized in the results of the year in which is incurred.

DEFERRED TAXDeferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not be reversed in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments and interests are recognized solely to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to be reversed in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and must be reduced to the extent that it is not probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted at the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would arise from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and deferred tax liabilities are offset when there is a legal right to offset short-term assets with short-term liabilities and when they refer to income tax relating to the same tax authority and the Company intends to settle its assets and liabilities on a net basis.

CURRENT AND DEFERRED TAXCurrent and deferred tax are recognized as income or expense in earnings, except when they refer to items that are recognized outside earnings, either in other comprehensive income or directly in stockholders’ equity, in which case, the tax is also recognized outside earnings, or when they arise from the initial recognition of a business combination.

The asset tax (IMPAC) expected to be recovered in future periods is recorded as an income tax credit and is presented in the consolidated statement of financial position as a net amount in the balance of deferred income tax.

q. Earnings per share Earnings per share are calculated by dividing the consolidated net income attributable to the controlling interest by the weighted average number of shares outstanding during the year. The Company has no effects arising from potentially dilutive shares.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Company’s management uses certain estimates and assumptions based on historical experience and other factors that are considered to be relevant for the preparation of the consolidated financial statements. Actual results may differ from these estimates.

The estimates and assumptions are continuously reviewed. Amendments to accounting estimates are recognized in the period in which the amendment is performed and future periods if the amendment affects both current and subsequent periods.

Below are the estimates performed by management in the application of the Company’s accounting policies, and that may have a significant effect on the consolidated financial statements.

i. Recognition of revenues related to the Loyalty Program, see Note 3o.ii. Determination of finance leases, mainly including the term based on the extension clauses, discount rates, allocation of building components of the total agreement, see Notes 3k. and 12.iii. Recoverability of intangible assets with indefinite useful lives, see Notes 3i. and 11.iv. Impairment of fixed assets, see Note 3j.v. Useful lives of property, furnishings and equipment, see Notes 3f. and 10.vi. Determination of the fair values of the net assets acquired in the purchase of CCM, see Notes 3h and 9.vii. Classification of assets held to sale, as well as the liabilities related with those assets, see Notes 3e and 8. viii. Impairment of goodwill, see Notes 3h and 9.ix. Determination of fair value of hedging derivative financial instruments (SWAP), see Note 3c.

5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents at the end of the reporting period are as follows:

2017 2016

Cash and banks $ 3,564 $ 2,178

Cash equivalents 102 541

$ 3,666 $ 2,719

6. TRADE ACCOUNTS AND OTHER ACCOUNTS RECEIVABLE

Trade and other accounts receivable are as follows:

2017 2016

Trade accounts receivable, net $ 1,880 $ 1,874

Sundry debtors 677 551

Recoverable tax 235 535

Creditable tax 3,028 3,285

Derivative financial instruments 94 -

Other 242 230

Other accounts receivable 4,276 4,601

$ 6,156 $ 6,475



TRADE ACCOUNTS RECEIVABLETrade accounts receivable are classified as accounts receivable; therefore, they are valued at amortized cost.

In determining the recoverability of accounts receivable, the Company’s management considers any change in the credit quality of the account from the date at which the credit was initially granted to the end of the reporting period.

Trade accounts receivable disclosed above include past-due amounts at the end of the reporting period (see below for ageing analysis). The Company has recognized an allowance for doubtful accounts for some customers related to leases of commercial premises.

The analysis of the age of non-impaired accounts receivable as of December 31 is as follows:

2017 2016

Current balance $ 705 $ 888

30 days 179 34

31 to 60 days 45 22

Over 61 days 951 930

Trade accounts receivable, net $ 1,880 $ 1,874

The movement in the allowance for impairment and other accounts receivable is analyzed as follows:

2017 2016

Balance at beginning of the year $ 40 $ 5

Business acquisition - 35

Allowance for doubtful accounts 29 2

Accounts receivable write-offs (6) (2)

Final balance as of December 31, $ 63 $ 40

RECOVERABLE TAXRecoverable tax balances as of December 31, 2017 and 2016, mainly consist of value added tax and favorable income tax resulting from filing estimated tax payments pursuant to the tax provisions in effect.

CREDITABLE TAXThe Company’s main creditable tax arise from value added tax and special tax on production and services, and for such tax to be creditable, they must have been effectively paid.

7. INVENTORIES

2017 2016

Merchandise for sale $ 25,918 $ 25,141

Merchandise in transit 584 827

Inventories $ 26,502 $ 25,968

8. ASSETS CLASSIFIED AS HELD FOR SALE AND RELATED

In order to comply with the conditions precedent in the favorable decision issued by the COFECE related to the acquisition of CCM, received on October 2015 through the concentration record CNT-021-2015, Soriana informed on January 27, 2016 that it formally commenced the sale and divestiture of 12 stores of the 143 stores acquired from CCM. At the date of this report, the divestiture process continues.

The assets available for sale consist of the following:

2017 2016

Real property and equipment held for sale $ 1,272 $ 1,258

Merchandise inventory 289 241

Total assets classified as available for sale 1,561 1,499

Liability related to assets available for sale 181 186

Net assets available for sale $ 1,380 $ 1,313

The amounts correspond to assets and liabilities that are part of the divestiture process carried out by the Company, which must be considered separately from the rest of Soriana’s assets.

During 2017 and 2016, the Company carried out different strategies in order to receive purchase proposals from competitors and operators of the general self-service sector, real estate developers, and any other individual or legal entity that is independent and autonomous from the Company, which are interested in participating in this sale process and operate such business units under the terms of the conditions set forth by the COFECE. At the closing of 2017, the Company could not complete any transaction for the sale of the CCM 12 stores to be divested.

9. BUSINESS COMBINATION

ACQUISITION OF CCMIn October 2015, Soriana announced that it received a notice from COFECE on a conditioned favorable decision with respect to the purchase agreement entered into with CCM. Subsequently, both Soriana and CCM advised that they filed a letter with COFECE accepting the conditions imposed by such authority, necessary for the approval of the transaction, whereby Soriana agrees to purchase and subsequently divest, or alternatively refrain from purchasing 26 stores of the 157 stores negotiated within the original agreement with CCM. Based on the above, the Company decided to exclude 14 stores from the purchase transaction and subsequently divest in the remaining 12 stores, with which the acquisition of CCM by Soriana included 143 self-service stores.

On January 7, 2016, Soriana successfully concluded the Takeover Bid (OPA) launched through Tiendas Soriana, primary subsidiary of the Company, to acquire the related units representing the capital stock of CCM. The OPA was settled on January 8, 2016, acquiring 1,045,879,794 related units, representing 4,183,519,176 common stock with no par value, fully subscribed and paid, representing 96.31% of CCM’s outstanding capital stock. The consideration paid in cash for the acquisition of such related units was $34,109.

In January 2016 CCM was a company within the Mexican commercial sector that operates 143 self-service units under the names Comercial Mexicana, Mega, Bodega Comercial Mexicana and Alprecio in several cities of the country, which sell a broad variety of food, clothes, general goods and health products.

The acquisition of CCM allowed the combination of competitive advantages of both companies, including the generation of expected synergies, efficiency in the integration of distribution networks, future market development, qualified human capital, a broad infrastructure of customer services, among others.

As part of this transaction, Soriana acquired assets of high strategic value such as: real estate, third-party lease agreements, operating equipment, inventory of stores, commercial premises and shopping areas, other additional real estate assets, logistics platform, distribution centers, licensing on the technological platform and information systems, certain trademark rights and promotional campaigns, among other strategic assets. In addition, as part of the strategic part of the transaction, 20,700 employees became part of the Company, thus creating a great opportunity to exchange best commercial and operating practices between the personnel of both companies.



FAIR VALUE OF NET ASSETS ACQUIREDThe initial distribution of the purchase price that the Company’s management assigned to the fair values of CCM’s assets and liabilities assumed as of the acquisition date was as follows:

Current assets(i) $ 9,011

Fixed assets, net 27,970

Intangible assets(ii) 4,170

Other assets 57

Total assets 41,208

Other liabilities 7,809

Deferred income tax liabilities 4,636

Total liabilities 12,445

Fair value of net assets acquired $ 28,763 (i) Current assets mainly consist of inventory of merchandise, as well as cash and cash equivalents, and accounts receivable. (ii) Intangible assets consist of an iconic trademark, non-competition agreements and certain favorable agreements.

The consideration was paid in cash.

Goodwill determined in the acquisition

Consideration transferred $ 34,109

Add: non-controlling interest 1,242

Less: fair value of net assets acquired 28,763

Goodwill determined in the acquisition $ 6,588

Net cash flows on acquisition of subsidiaries

Consideration paid in cash $ 34,109

Less: balances of cash and cash equivalent acquired 1,771

$ 32,338

ACQUISITION OF NON-CONTROLLING INTERESTOn June 13, 2016, Tiendas Soriana made a second OPA and acquired 33´956,783 related units equivalent to 135´827,132 common shares at no par value, fully subscribed and paid equivalent to 3.13% of the outstanding capital stock of CCM. The consideration paid in cash for such related units was $1,107.

In July 2016, Tiendas Soriana established a trust to acquire the entire related units that were not acquired in the aforementioned bids, at a purchase price equal to the acquisition price per related unit in the first OPA. From the trust establishment date to the end of December 2016, 5´300,901 related units were acquired through this trust, equivalent to 21,603,604 common shares at no par value, fully subscribed and paid, equivalent to 0.49% of the outstanding capital stock of CCM. The consideration paid in cash for such related units was $174.

The acquisition of 3.13% and 0.49% of the related units described in the two preceding paragraphs generated a premium for the acquisition of non-controlling interest of $250, which was directly recorded in the stockholders’ equity attributable to the controlling interest.

As of December 31, 2016, Soriana owned 99.92% of the shares representing CCM capital stock.

In 2017, Tiendas Soriana made additional purchases of linked units of CCM, which accounted for 0.02% of the capital stock of CCM and, in addition, the capital stock was restructured through a restructuring of the capital stock of CCM through a “reverse split”. Derived from the aforementioned transactions, as of December 31, 2017, Soriana owns 100% of the shares representing the capital stock of CCM.

10. PROPERTY, FURNITURE AND EQUIPMENT, NET

Balance as of December 31, 2016

Additions DisposalsBalance as of

December 31, 2017

Investment:

Land $ 30,916 $ 272 $ (208) $ 30,980

Buildings and construction 38,392 1,317 (35) 39,674

Furniture and office equipment 24,800 791 (165) 25,426

Work in progress 578 - (34) 544

Total investment 94,686 2,380 (442) 96,624

Depreciation:

Building and construction (9,266) (954) 18 (10,202)

Furniture and office equipment (14,970) (1,590) 107 (16,453)

Total accumulated depreciation (24,236) (2,544) 125 (26,655)

Net investment $ 70,450 $ (164) $ (317) $ 69,969


Additions Disposals Business

AcquisitionBalance as of

December 31, 2016

Investment:

Land $ 13,646 $ - $ (583) $ 17,853 $ 30,916

Buildings and construction 28,140 784 (279) 9,747 38,392

Furniture and office equipment 19,325 1,202 (266) 4,539 24,800

Work in progress 328 194 (6) 62 578

Total investment 61,439 2,180 (1,134) 32,201 94,686

Depreciation:

Building and construction (5,831) (1,053) 112 (2,494) (9,266)

Furniture and office equipment (11,409) (2,005) 181 (1,737) (14,970)

Total accumulated depreciation (17,240) (3,058) 293 (4,231) (24,236)

Net investment $ 44,199 $ (878) $ (841) $ 27,970 $ 70,450

Depreciation expense for the years ended as of December 31, 2017 and 2016, amounted to $2,544 and $2,613, respectively.

The balance of buildings and construction include the recognized portion of finance leases and their related accumulated depreciation, which amounted to $2,013 and ($756) as of December 31, 2017 and $2,027 and ($694) as of December 31, 2016, respectively.



11. INTANGIBLE ASSETS

2017 2016

Assignment of lease agreement rights(1) $ 8,834 $ 8,834

Iconic CCM Acquisition Commercial Brand(1) 2,400 2,400

Non-compete agreement(2) 2,379 2,379

Favorable agreements(1) 670 670

Other intangible assets(2) 2,554 2,421

Goodwill(1) 6,588 6,588

23,425 23,292

Accumulated amortization (3,201) (2,494)

Intangible assets, net $ 20,224 $ 20,798

(1) Intangible assets with indefinite useful lives.(2) Intangible assets with defined useful lives.

The useful lives used for the calculation of amortization in respect of the non-compete agreement are 10 years for the related assets in the acquisition of Gigante, whose amortization ended in 2017 and 3 years in the case of non-compete rights for the acquisition of CCM, whose amortization will end in 2018.

As part of its information technology transformation project, the Company made disbursements for the acquisition and development of its SAP computer system, which became operational on January 1, 2013, the date it began to amortize the related intangible asset, the amortization period is up to 15 years.

The Company concluded that no impairment adjustments existed according to the impairment calculations on its intangible assets as of December 31, 2017 and 2016.

The assignment of lease agreement rights as of December 31, 2017 and 2016, represent the rights acquired by Soriana to lease for an indefinite period of time, 175 points of sale located in different geographical areas of the country and are considered as an indefinite life intangible asset, because such agreements are considered to be extended to maintain the business continuity.

There were no borrowing costs for capitalized loans related to qualifying intangible assets for the years ended December 31, 2017 and 2016.

The discount and perpetual growth rates used to assess the possible impairment of intangible assets with indefinite useful lives for the periods ended December 31, 2017 and 2016 are as follows:

2017 2016

Discount rate 11.0% 10.5%

Perpetual growth rate 4.2% 4.2%

For purposes of the calculation of the recoverable value of supermarket stores, discount rates before tax are used and applied to cash flows before tax.

The Company’s management believes that any reasonably possible change in the factors used in the evaluation of the recoverable value will not cause the value of supermarket stores to exceed their recoverable value.

12. OTHER LONG-TERM LIABILITIES

Balances of other long-term liabilities consist mainly of finance leases.

The Company has entered into real property lease agreements with third parties, which have binding terms from 5 to 20 years extendable or renewable for at least a similar period. Payments for these agreements include fixed minimum payments as well as in certain cases variable terms based on a percentage of sales of the Company’s stores.

The amounts of minimum rentals that will be paid during the following years for finance leases, and the present value thereof which represents a recognized financial lease liability, are as follows:

Finance leases Minimum rental payments

2018 $ 34 $ 201

2019 36 199

2020 40 199

2021 44 199

2022 44 194

2023 40 186

2024 and thereafter 1,443 3,178

$ 1,681 $ 4,356 The amounts charged to profit or loss related to payments for leases of property as of December 31, 2017 and 2016 amounted to $315 and $335, respectively, which include depreciation, interest expense and contingent lease payments.

During 2017, the Company did not have any acquisitions of property, furniture and equipment under finance leases.

13. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated in consolidation.

The remuneration and benefits for key management personnel during the year ended December 31, 2017 and 2016 were $153 and $133, respectively, which comprise of base salaries and other benefits. There is no agreement or program to involve employees in Soriana’s equity.

The Company conducted transactions with related parties, mainly stockholders which resulted in lease income of $39 and $35 for the years ended December 31, 2017 and 2016, respectively, and purchases of merchandise for sale of $468 and $450 for the years ended December 31, 2017 and 2016, respectively. The balances payable to related parties as of December 31, 2017 and 2016 were $9 and $14 respectively, are included in trade accounts payable in the consolidated statements of financial position.



14. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK HEDGES

As a result of the acquisition of CCM, Soriana contracted a long-term bank debt bearing variable interest and issued long-term debt securities (CEBURES), which also bear variable interest. In both cases, the variable interest rate is linked to the movement of the 28-day Interbank Equilibrium Interest Rate (TIIE). To mitigate the risk of a likely rise of the 28-day TIIE, as of December 31, 2017, the Company has contracted interest rate Swap-type derivative financial instruments (DFI’s) to cover the risk on a certain long-term debt. The Company contracted an interest rate Swap with a Short Cap to cover the interest rate risk on a long-term bank loan. Hedged notional are mentioned in the following table.

The fair value of the aforementioned derivative financial instruments are on the other accounts receivable line in the consolidated statement of financial position as of December 31, 2017, using the level 2 hierarchy to obtain the fair value. The valuation method includes discounting at present value the expected interest cash flows calculated based on the curve of the rate of the cash flow currency, and expresses the net result in the reporting currency:

Type of Derivative Beginning Maturity Counterparty Reference Variable

Notional (Millions of Mx pesos)

Fair Value (Millions of Mx pesos)

Interes rate Swap + Short Cap(1)

January 2017 January 2021 SANTANDER 28-day TIIE $ 3,500 $ 37

Interes rate Swap(2) January 2017 December 2020 SANTANDER 28-day TIIE 2,000 11


Interes rate Swap(2) January 2017 April 2021 SANTANDER 28-day TIIE 2,150 11


$ 12,750 $ 94

(1) Trading derivative financial instrument(2) Hedging derivative financial instrument

Soriana has a natural long position in Mexican pesos (MXN), and eventually has needs in US dollars (USD) resulting from the purchase (purchase time) of some inventory of goods for sale which gives rise to the account payable (settlement time) in dollars. To mitigate such variability in the MXN/USD exchange rate for certain transactions related to the purchase of goods for sale, in fiscal year 2017, FX-type DFI’s were contracted, as of December 31, 2017, these DFI’s had already been settled.

At December 31, 2016, the Company did not have derivative financial instruments.

Soriana has designated the aforementioned derivative financial instruments under the cash flow hedge model, in terms of the provisions of IFRS, and has formally documented each hedging relationship establishing the objectives, management strategy to cover the risk, identification of the hedging instrument, hedged item, nature of the risk to be covered, and effectiveness evaluation methodology. Except for the interest rate Swap contracted with Short Cap, which although was contracted from an economic hedging perspective, as it has a Short Cap, it was not designated as an accounting hedge because IFRS does not allow doing so; therefore, the structure was designated as a trading instrument. The amount in earnings as of December 31, 2017 is a favorable amount of $44 in the financial cost.

As of December 31, 2017, the effectiveness of the interest rate Swap type DFI´s was highly effective, since changes in the fair value and cash flows of the primary position are offset in the range of 102% to 103%. The method to measure the effectiveness is the offsetting of expected flows (fair value), which consists of the comparison of the changes in fair value of the primary position through a hypothetical derivative against the change in the fair value of the derivative, both prospectively through hypothetical scenarios, and retrospectively through the fair values observed. In addition, as of December 31, 2017, amounts of $51 ($35, net of income tax) corresponding to the effective portion of hedges were recorded in other “Other comprehensive income items.”

For the FX-type DFI´s settled in fiscal year 2017, which were designated as hedging, as changes in the fair value and the cash flows of the primary position were settled in a range of 100.4%, using the expected flow offsetting method (fair value), a favorable amount of $17 in financial costs and $37 in cost of sales was recorded. As of December 31, 2017 and 2016, no FX-type DFI´s have been contracted.

15. FINANCIAL INSTRUMENT RISK MANAGEMENT

The Company is exposed to different financial risks inherent to its operation, which are mainly: a) market risk (foreign exchange and interest rates, b) liquidity risk and c) credit risk, for which it seeks to manage the potential negative effects thereof in its financial performance. These risks are evaluated through a risk management program according to the valuation of these risks and internal guidelines.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, financial obligations, finance lease liabilities and derivative financial instruments. The carrying amounts of these financial assets and liabilities approximate their fair value due to their short-term maturities or because they were issued at their fair value.

Fair value of long-term debt and financial leases is determined by the value of the discounted flows. Discount rate is estimated using current rates offered for debts with similar amounts, level of credit risk and maturity; long-term debt consists of bank loans and CEBURES. Bank loans and financial leases are considered at level 2 in the fair value hierarchy. The fair value of the debt that is publicly traded (CEBURES) is determined based on market quoted price at December 31, 2017, which is considered at level 1 of the fair value hierarchy. As of December 31, 2017 and 2016, the fair value and carrying amount of the aforementioned concepts, are as follows:

2017 2016

Carrying amount $ 24,623 $ 27,691

Fair value 24,594 27,691

a) Market riski. Exchange risk

As of December 31, 2017 and 2016, the exchange rate was $19.73 and $20.66 nominal pesos per U.S. dollar, respectively. At the issuance of these consolidated financial statements, the U.S. dollar was $18.34 nominal pesos per U.S. dollar.

The amounts shown in this note are stated in millions of U.S. dollars (US$), as it is the prevailing currency for the Company’s foreign currency transactions. As of December 31, the Company’s financial assets and liabilities in foreign currency are as follows:

2017 2016

Current financial assets US$ 48 US$ 4

Short-term financial liabilities (57) (77)

Net liability position of financial instruments US$ (9) US$ (73)

Equivalent in millions of Mexican pesos $ (178) $ (1,523)

The Company’s main foreign currency transactions are:

2017 2016

Purchases US$ 248 US$ 267

Equivalent in millions of Mexican pesos $ 4,689 $ 4,999

A substantial devaluation of the Mexican peso against the U.S. dollar exchange rate may affect the economic performance of the country, which could have an impact of a lower level of consumption and consequently the Company’s revenues would be affected. However, the main operation of the Company does not have a close relationship with fluctuations of the Mexican peso against the U.S. dollar exchange rate; therefore, the potential risk derived from this factor is of a minor impact to the Company’s current operations. Considering the net liability position in U.S. dollars as of December 31, 2017 shown in the above table, if a movement of 0.50 Mexican pesos arises at the exchange rate of the U.S. dollar, where all other assumptions remained constant, there would be a favorable or unfavorable impact to the Company’s net income of $3, net of tax.



EXCHANGE RISK MANAGEMENTThe Company manages this type of risk with hedging transactions, contracting derivative financial instruments such as forwards to mitigate its forecasted transactions. A hedge is considered highly effective when changes in fair value or cash flows of the underlying directly attributable to the hedged risk, are offset by the changes in the fair value or the cash flows of the hedging instrument.

The Company’s total interest-bearing debt is contracted in Mexican pesos.

ii. Interest rate riskIn order to finance the acquisition of CCM, the Company, through its Debt Securities Program, which is in effect, carried out some issuances of long-term debt securities linked to TIIE plus a surcharge. In addition, the Company has contracted short and long term bank loans with different financial institutions that also use as reference the TIIE to determine interest rates. Therefore, the exposure to interest rate risk of the Company’s debt is related to the evolution of the TIIE.

The Company’s total interest-bearing debt cost is contracted at a variable rate.

In recent years and until the end of 2015, the TIIE rate had remained at stable levels derived from consistency and continuity in the country’s macro-economic policies. At the end of 2015, and in 2016 and 2017, interest rates in Mexico have risen with the consequent increase in the TIIE rate. The Company’s management has carried out various analyses in order to control or mitigate these effects for the movement in that variable; therefore, in 2017, for a significant portion of the long-term debt, the Company has contracted Interest rate Swap-type DFI’s with reference to TIIE, in order to cover the TIIE fluctuation. A variation in the TIIE rate could cause a change in the results of the financial expense associated with debt levels.

If a 25-point basis variation in the TIIE rate occurred, where all other assumptions remained constant, there would be a favorable or unfavorable impact to the Company’s net income of $56, net of tax.

b) Liquidity riskIn order to finance the acquisition of CCM, the Company has issued debt through its Debt Securities Program that is in effect; therefore, it must access the domestic debt market. In addition, the Company has contracted short and long term bank loans. The maturities of principal of the long-term bank and securities debt of the Company have been scheduled based on the expectation of generating free cash flows of Soriana; therefore, the Company estimates that it will be able to meet its commitments to its creditors on a timely manner.

To date, the Company has been able to successfully and continuously place its debt issuances on the market in the last years, and has been able to access both committed and non-committed credit lines with diverse financial institutions. Notwithstanding the foregoing, the Company cannot assure that it will have or access new financial resources in the future, which may have an adverse effect on its operating results and financial situation.

Soriana has lines of credit committed to some national financial institutions that allow it to have some financial flexibility in case it needs to cover certain commitments or increase its liquidity. The Company has authorized uncommitted credit lines with different banks, which allow it to address any additional liquidity requirements.

The Company, through its Treasury and Finance departments, performs cash flow projections, monitoring their behavior and treasury levels on a daily basis, which allows anticipating any event that may jeopardize its liquidity levels to be able to meet different payment obligations. In addition, such cash flow projections and the daily treasury monitoring allow the Company to be able to plan and anticipate the required actions to cover any cash flow needs it may require in the future.

c) Credit riskThe concentration of credit risk with respect to accounts receivable is very limited, as sales are mainly conducted through its supermarket stores with the general public in cash; therefore, the Company considers it has a diversified customer base, which significantly reduces credit risk.

The Company considers that the allowance for doubtful accounts adequately covers accounts receivable that could represent a risk of recovery, which is reviewed regularly for such allowance to be adjusted, if necessary.

d) Capital ManagementThe Company manages its capital to ensure it will be able to continue as a going concern, seeking for balancing the return to its stockholders at a low level of risk, through the optimization of its debt and equity structure. Historically, the Company’s strategy has been to reinvest in general terms its earnings allocating resources to generate further organic growth, in pursuit of maintaining a financial structure without debt, except for the financing it utilized for the acquisition of CCM’s supermarket stores.

The Board of Directors annually reviews the capital structure of the Company.

The Company’s capital structure consists of net debt (debt generated through the debt securities program and the bank debt reduced by cash and bank balances, as needed) and the capital of the Company (including issued capital stock, capital reserves and retained earnings).

16. DEBT SECURITIES AND SHORT AND LONG – TERM DEBT

In May 2013, the Company’s management obtained from the National Banking and Securities Commission (CNBV), authorization to start a new program of short and long term debt securities on a revolving basis. The period for issuances under the program shall be five years and the amount authorized for the issuance of short-term debt securities is up to $6 billion pesos, or its equivalent in investment units (UDIS). In November 2015, the CNBV authorized the Company to extend the authorized amount of the program up to $25 billion Mexican pesos or its equivalent in UDIS on a revolving basis. The amount of issuance of debt securities is up to $6 billion Mexican pesos. In addition, the Company has issued long-term bank loans with financial institutions.

In order to finance the acquisition of CCM by Soriana on January 8, 2016, the Company incurred in the contracting of debt with cost, which is denominated in Mexican pesos and at a variable rate linked to the TIIE rate.



As of December 31, 2017 and 2016, the short and long-term debt of the Company includes the following:

Interest rate (*)

Expiration 2017 Interest rate (*)

Expiration 2016

SHORT TERMSimple credit Scotiabank(4) 7.59% Jan-18 $ 600

Simple credit Santander(3) 5.72% Mzo-17 $ 1,500

Short-term debt $ 600 $ 1,500

CEBURES SORIANA 015(6) 7.95% Dec-18 $ 2,343

CEBURES SORIANA 016(7) 8.10% Dec-18 710

Circulating portion of long-term debt securities $ 3,053

Simple credit Bank of Tokyo(1) 7.89% Mar, Jun, Sep, Dec 18

$ 1,551 6.19% Mzo, Jun, Sep, Dic 17

$ 1,551

Simple credit EDC(10) 7.89% Oct-18 270

Simple credit Bancomer(2) 6.27% Mzo, Jun, Sep Dic 17

1,500

Hewlett Packard(5) 4.90% Jun 18 63 4.90% Jun 17 4

Circulating portion of long-term bank debt $ 1,884 $ 3,055

Short-term debt 7.88% $ 5,537 6.06% $ 4,555

LONG-TERMCEBURES SORIANA 015(6) 7.95% 24-dec-20 $ 4,746 5.66% 24-dic-20 $ 7,089

CEBURES SORIANA 016(7) 8.10% 16-apr-21 1,437 5.81% 16-abr-21 2,147

Long-term debt securities 7.99% $ 6,183 5.69% $ 9,236

Simple credit Bank of Tokyo(1) 7.89% 20-dec-19 $ 1,534 6.19% 20-dic-19 $ 3,083

Simple credit Bancomer(12) 8.25% 22-dec-21 3,000

Simple credit Bancomer(2) 6.27% 07-jun-19 4,500

Simple credit Scotiabank(8) 8.19% 05-jan-21 3,500 6.31% 05-ene-21 3,500

Simple credit Scotiabank(9) 6.11% 26-ago-18 1,000

Simple credit Santander(11) 8.27% 29-sep-19 1,500

Simple credit EDC(10) 7.89% 20-oct-21 1,620

Hewlett Packard(5) 4.90% 30-jun-19 67 4.90% 30-jun-19 83

Long-term bank debt 8.11% $ 11,221 6.24% $ 12,166

Total Long-Term 8.07% $ 17,404 6.00% $ 21,402

Total Debt 8.02% $ 22,941 6.01% $ 25,957

(*)Weighted average of nominal rates in force as of December 31, 2017 and 2016.(1)Simple credit granted by Bank of Tokyo-Mitsubishi UFJ, Ltd for $5,040 nominal value, the current portion of $1,551 matures on a quarterly basis in the months of March, June,

September and December 2018. The portion in the long term, matures up to 24 months and a variable interest rate based on the TIIE plus a surcharge of 0.43%, whose interest

is paid on a quarterly basis, with final maturity of the principal in December 2019.(2) Unsecured loan granted by BBVA Bancomer, S.A., with a term of 48 months and a variable interest rate based on the TIIE plus a surcharge of 0.85%, whose interest is paid on

a monthly basis, with a final maturity of the principal in June 2019. This loan was fully paid on December 22, 2017. (3) Current account loan granted by Banco Santander, S.A. up to $1,500 nominal value, maturing in March 2017, and bearing variable interest based on TIIE plus a surcharge of

0.20%. This loan was paid in full on March 28, 2017.(4) Promissory note signed with Scotiabank Inverlat, S.A. up to $600 nominal value, with maturity in January 2018 and a variable interest rate based on the TIIE plus a surcharge

of 0.18%. (5) Credit granted by Hewlett Packard for the purchase of computer equipment, due in June 2019 and May 2020. (6) Long-term Debt securities issued in 2015 for a nominal amount of $ 7,100 that pay interest coupon every 28 days at a rate of TIIE 28 days plus a surcharge of 0.55%.

(7) Long-term Debt securities issued in 2016 for a nominal amount of $ 2,150 that pay interest coupon every 28 days at a rate of TIIE 28 days plus a surcharge of 0.70%.(8) Unsecured loan granted by Scotiabank Inverlat, S.A. in the amount of $3,500 nominal value, with a 60-month term and a variable interest rate based on TIIE plus a surcharge

of 0.80%, which interest is paid on a monthly basis. Principal matures in January 2021.(9) Current account loan granted by Scotiabank Inverlat, S.A. in the amount of $1,000 nominal value, with a 24-month term, and a variable interest rate based on the TIIE plus a

surcharge of 0.45%, whose interest is paid on a monthly basis, with original maturity in August 2018, which by means of an agreement, the final maturity was changed to August

2019.(10) Unsecured loan granted by Export Development Canada in the amount of $1,890 nominal value; the current portion of $270 has semi-annual maturities, with a year of grace;

in October 2018, the first payment will be made. The long-term portion has a maturity of up to 36 months and a variable interest rate based on the TIIE plus a surcharge of

0.43%, whose interest is paid half-yearly, with final maturity of the principal in October 2021.(11) Current account loan granted by Banco Santander, S.A. for $1,500 nominal value, with a 24-month term, and a variable interest rate based on the TIIE plus a surcharge of

0.65%, whose interest is paid on a monthly basis, with final maturity in September 2019.(12) Current account loan granted by BBVA Bancomer, S.A. for $3,000 nominal value, with a 48-month term, and a variable interest rate based on the TIIE plus a surcharge of

0.67%, whose interest is paid on a monthly basis, with final maturity in December 2021.

During 2018 interest payable relating to the outstanding debt and debt securities contracted as of December 31, 2017, would amount to $1,783(1) and there is a principal repayment of the debt of $4,874.

As of December 31, 2017, interest-bearing long-term debt maturities, are as follows:

Year Payment of Principal Interest(1)

2019 $ 7,701 $ 1,360

2020 4,964 851

2021 4,739 444

$ 17,404 $ 2,655

(1) Interest payable is estimated based on 28-day TIIE at December 31, 2017.

The Company’s debt securities and bank loan contracts set forth restrictions and the obligation to maintain certain financial ratios, which have been fulfilled as of December 31, 2017 and 2016.

The reconciliation of the obligations derived from the financing activities is as follows:


Proceeds from borrowings

Repayment of borrowings


Bank debt $ 16,721 $ 155,490 $ (158,506) $ 13,705

Debt securities 9,236 9,236

Total Debt $ 25,957 $ 155,490 $ (158,506) $ 22,941

17. OTHER ACCOUNTS PAYABLE

2017 2016

Tax payable $ 2,478 $ 2,351

Other accounts payable 2,258 2,285

Total other accounts payable $ 4,736 $ 4,636



18. EMPLOYEE BENEFITS

Defined and vested benefit obligations, and seniority and retirement premiums are detailed below:

As of December 31, 2017

Retirement benefit Seniority premium Total

Defined benefit obligations $ (1) $ (515) $ (516)

Plan assets 3 36 39

Unfunded defined benefit (294) (294)

Recognized liability for the year $ (292) $ (479) $ (771)

As of December 31, 2016

Retirement benefit Seniority premium Total

Defined benefit obligations $ (1) $ (477) $ (478)

Plan assets 2 30 32

Unfunded defined benefit (189) (189)

Recognized liability for the year $ (188) $ (447) $ (635)

The nominal economic hypothesis used were:

As of December 31 of

2017 2016

Discount rate 7.75% 7.70%

Salary growth rate 5.49% 5.49%

Minimum wage growth rate 3.91% 3.91%

Return on plan assets 7.70% 7.75%

Defined benefit obligations are detailed as follows:

2017 2016

Benefit plan for:

Defined benefit retirement plan $ (1) $ (1)

Seniority premium (515) (477)

Recognized liability for the year $ (516) $ (478)

The status of the defined benefit pension plan is detailed as follows:

2017 2016

Defined benefit retirement plan $ (1) $ (1)

Plan assets 3 2

Recognized asset for the year $ 2 $ 1

The reconciliation of defined benefit seniority premium liability/asset is detailed as follows:

As of December 31,

2017 2016

Opening balance as of January 1 $ (447) $ (321)

Business acquisition (114)

Service cost (44) (40)

Net interest on defined benefit liability (28) (22)

Actuarial remeasurements (9) (15)

Payments made 49 65

Recognized liability at the end of the year $ (479) $ (447)

Below is a sensitivity analysis of the financial hypothesis which the Company’s actuary considers can generate the most probable impacts on the defined benefit obligation, namely the discount rate. The sensitivity analysis is performed with 0.5% above/below the discount rate.

(%) Amount Differences

Discount rate: 8.25 % $ (491) $ 24

7.75 % (515) 0

7.25 % (540) (25)

Below is a sensitivity analysis of the financial hypothesis which the Company’s considers can generate the most probable impacts on the defined benefit obligation, namely the discount rate and minimum wage growth rate. The sensitivity analysis is performed with 0.5% above and below related to the discount rate, for the minimum increase rate sensitivity analysis is made with 0.25%.


Wage increase rate (3.66%): 8.25 % $ (481) $ 34

7.75 % (504) 11

7.25 % (528) (13)


Wage increase rate (4.16%): 8.25 % $ (502) $ 13

7.75 % (526) (11)

7.25 % (553) (38)



Estimated benefit payments in the following years are as follows:

Seniority Premium

2018 $ 39

2019 37

2020 37

2021 38

2022 39

2023 to 2027 305

19. STOCKHOLDERS’ EQUITY

As of December 31, 2017 and 2016, the Company’s capital stock is comprised of 1,800,000,000 no par value shares, fully subscribed and paid; which correspond to series B and represent the minimum fixed capital, without right of withdrawal.

Net income for the year is subject to the statutory provision that requires that 5% of the profits of each year be transferred to the legal reserve, until such reserve equals 20% of capital stock. As of December 31, 2017 and 2016 the legal reserve amounts to $413 and is included in retained earnings.

Stockholders’ equity, except for restated paid-in capital (CUCA for its acronym in Spanish) and tax retained earnings from the net tax income account (CUFIN for its acronym in Spanish) will be subject to ISR payable by the Company at the rate in effect upon distribution when it does not arise from such account. Any tax paid on such distribution may be credited against annual and estimated ISR of the year in which the tax on dividends is paid and the following two fiscal years. The balance of CUCA and CUFIN as of December 31, 2017 amounted to $34,035 and $47,115, respectively.

20. OTHER REVENUES

2017 2016

Lease income $ 1,848 $ 1,817

Service revenues 1,080 1,101

Other income 534 821

Total other income $ 3,462 $ 3,739

21. INTEREST EXPENSE, NET

2017 2016

Interest expense $ (2,458) $ (1,913)

Interest income 208 244

Exchange gain (loss) net 48 (236)

(2,202) (1,905)

Capitalized interest in property, furniture and equipment 5 13

$ (2,197) $ (1,892)

22. INCOME TAX

Soriana and its subsidiaries are subject to ISR at a rate of 30%.

Beginning in 2008, the IMPAC Law was repealed, allowing, under certain circumstances, the recovery of this tax paid in the ten fiscal years prior to that in which ISR was paid for the first time, under the terms of the tax provisions.

The reconciliation of the statutory and effective ISR rates for the years ended December 31, 2017 and 2016 is as follows:

2017 2016

Income before income tax $ 6,925 $ 6,562

Statutory income tax rate

(30% for 2017 and 2016) $ 2,078 $ 1,969

Add (less) effect on income tax for:

Tax inflationary effect 913 501

Non-deductible expenses and non-taxable income, net 146 298

Increase in tax value of property, furniture and equipment (799) (487)

Other permanent differences, net (19) 73

Total income tax in expense $ 2,319 $ 2,354

Effective rate 33.0% 36.0%

The main items that give rise to the deferred income tax liability are:

2017 2016

Property, furniture and equipment $ 7,180 $ 6,300

Inventories 460 418

Other(*) 4,578 6,584

Deferred income tax provision(1) $ 12,218 $ 13,302

* Includes benefit from tax loss carryforwards and IMPAC.(1) Includes $181 short term and $12,037 long term as of December 31, 2017 and $186 short term and $13,116 long term as of December 31, 2016.



Deferred income tax as of December 31, 2017 and 2016 was recognized as follows:

2017 2016

Deferred tax opening balance $ 13,302 $ 9,226

Effect by acquiring business 4,636

Recognized in other comprehensive income 10

Provision of the year (1,094) (560)

Deferred income tax provision(1) $ 12,218 $ 13,302

Tax loss carryforwards are recoverable under certain requirements. As of December 31, 2017, years of expiration and restated amounts are as follows:

Year Recoverable IMPAC Tax loss carry forwards

2018 $ 8

2021 $ 4

2023 60

2024 44

2025 68

2027 132

Total $ 8 $ 308 Tax-loss carryforwards can be applied solely to offset taxes of each one of the entities generating them.

23. COMMITMENTS AND CONTINGENCIES

a. CommitmentsThe Company has commitments for operating leases of real property for average terms of 15 years, which are renewable for a similar period, some of which have a fixed portion and a variable portion determined based on percentages of sales of its stores. Such commitments amount to $6,037 as of December 31, 2017.

b. ContingenciesSome subsidiaries are currently defendants in agricultural lawsuits regarding the acquisition of land, and commercial lawsuits, which are mainly in the stage of presenting evidence. These contingencies amount to approximately $235 (nominal value) as of December 31, 2017. The Company has not recorded any provision with respect to these contingencies, since its legal advisors believe there are high possibilities of obtaining a favorable ruling.

During the year ended December 31, 2017, Management followed the practice of contracting insurance for third-party liabilities, material transport and fleets of cars and trucks. In relation to the coverage of real estate, the Company contracted an insurance policy with basic coverage of fire, hydrometeorological phenomena and earthquakes for all the stores, distribution centers and corporate offices, including buildings, inventory, equipment and furniture.

24. SEGMENT FINANCIAL INFORMATION

The segment financial information determined by the Company has been prepared according to IFRS 8, Operating Segments. The Company prepares the information for senior management and for their decision-making based on supermarket stores, which are its main line of business; therefore, it considers it as its only operating segment.

The Company’s main business is the sale of grocery products, perishable goods, clothing, and general merchandise to the general public through its supermarket stores. The Company operates solely in Mexico; therefore, it is considered its only geographical market.

25. AUTHORIZATION TO ISSUE THE CONSOLIDATED FINANCIAL STATEMENTS

The issuance of the accompanying consolidated financial statements was authorized on March 30, 2018, by Lic. Rodrigo Jesus Benet Córdova, Chief Financial Officer, and C.P. Jorge Alberto Reyes Mora, Chief Controller. These consolidated financial statements are subject to the approval of the ordinary stockholders meeting, where they may be modified, based on provisions set forth in the Mexican General Corporate Law.




INVESTORS RELATIONSRodrigo Benet C.

[email protected]

Arturo Ledesma M. [email protected]

INDEPENDENTS AUDITORSGalaz, Yamazaki, Ruiz Urquiza, S.C.

Lázaro Cárdenas 2321 Poniente, PB Col. Residencial San Agustín San Pedro Garza Garcia, N.L.

México, C.P. 66260

CORPORATE OFFICESAlejandro de Rodas 3102-A

Col. Cumbres 8° SectorMonterrey, N.L.

México, C.P. 64610

This 2016 annual report of organización soriana can contain certain forward-looking information relating to the performance of the company and its subsidiaries, wich should be considered as estimates made in good faith. These expectations reflect

management’s opinions, based on current available information. Results are subject to future an uncertain events, which could have an material impact on the company’s actual performance.

INFORMATION FORINVESTORS

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SIG

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Alejandro de Rodas 3102-A Col. Cumbres 8º Sector

Monterrey, N.L. México, C.P. 64610

Organización Soriana

closer to you - corporativo soriana eng final...2017 eff c mxic s. w actic proc yst, improv compan 1...

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